1.7 Trading Home trade and international trade Trade Home trade easier no 2. .................................... exchange government 3. .................................... no 1. . ....................... trade Why? Benefits Risks products economies of 6. .................................... ties with other countries 7. .................................... advantage break of monopolies lower prices market 8. .................................. exchange rate fluctuations 9. .................................... destruction of local economy increase of unemployment dependency on 10. .................................... vulnerability of specialised economies available only abroad lower 4. .................................... better 5. .................................... Trade may take place at a domestic or at an international level. Home trade Home trade is the exchange of goods or services within the boundaries of a country. It can be carried out easily since it does not involve any currency exchange and it is free from government restrictions. However, countries tend to share their prosperity, know-how, and products with other countries by exporting their surpluses and importing what they need. boundary: confine to clear border control: sdoganare duty: dazio exploitation: sfruttamento subsequent: conseguente tie: legame trading post: stazione commerciale 76 International trade International trade is much more complex because it involves dealing with different countries, cultures, languages, regulations and restrictions. However, international trade exists because some goods: can be found only in certain countries; are cheaper to produce abroad for different reasons; are of superior quality to local products. Benefits of international trade Economies of scale: by increasing production output to serve a larger market, countries are able to reduce cost per unit and sell at a lower cost. Closer ties with other nations brought about by the exchange of different products, know-how, and expertise. Exploitation of a country s comparative advantage: by having the possibility to obtain what it needs also from other sources, a country can specialise in the activities it can do best, more efficiently and at a lower cost. Break of domestic monopolies, because more variety and better quality goods are available. Lower prices because of competition, and thus greater purchasing power and better living standards for consumers. Market diversification: by trading abroad there are more chances to limit potential risks derived from operating on a single market. Risks of international trade Currency exchange rate fluctuations. Unexpected changes in a country s political policy such as trade barriers. Possible destruction of local economy caused by excessive competition and a consequent increase of unemployment. Possible dependency on imported goods with the subsequent risk of losing one s autonomy. Possible vulnerability of economies which specialised in the production of certain products in case demand for those products decreases.