Countries trade because they differ in resources, because specialising lowers costs and because buyers want variety. Each reason needs one sentence that explains why, not only a label.
This lesson is part of globalisation and international trade. The next lesson, comparing trade restrictions by mechanism, shows what governments do to limit trade.
What are the three reasons?
| Reason | Explanation |
|---|---|
| Different resources and climate | A country cannot grow or mine what its land lacks, so it buys it |
| Specialisation | Focusing on fewer goods raises output per worker and lowers cost per unit |
| Variety and choice | Buyers gain goods that would not be made at home |
A good answer names the reason and adds the because-sentence. “Resources differ” alone is a label. “Resources differ, so a country without iron ore must import it” is an explanation.
Worked example: two fictional islands
Pulau Rimba has fertile soil but no mineral deposits. Pulau Bukit has mineral deposits but thin soil.
If each island tries to make both fruit and tools, each has little of one. Pulau Rimba might produce 80 crates of fruit and 10 tools a week. Pulau Bukit might produce 20 crates of fruit and 50 tools.
Suppose each specialises in what it does better. Pulau Rimba puts its workers into fruit and produces 140 crates. Pulau Bukit focuses on tools and produces 90.
Together, they now make 140 crates and 90 tools. Before, the total was 100 crates (80 + 20) and 60 tools (10 + 50). Both totals rose, so there is more to share.
They then trade. Pulau Rimba sends fruit and receives tools, and Pulau Bukit does the reverse. Each island ends with both goods, and with more than it could make on its own.
Which mistakes cost marks?
The first is listing reasons with no explanation. “Specialisation” on its own earns less than “specialisation raises output per worker, so cost per unit falls”.
The second is saying trade benefits every person. A worker at a local firm facing cheaper imports may lose sales. A balanced answer states the gain and the condition.
The third is confusing resources with money. A country’s lack of iron ore is about land, not about cash.
Check yourself
Pulau Bunga has warm, wet weather but cannot grow wheat. Give two reasons it might trade with a country that grows wheat, with one explaining sentence each.
Answer
Reason 1: climate. Wheat needs conditions that Pulau Bunga lacks, so the only way for its people to have wheat is to import it.
Reason 2: specialisation. If Pulau Bunga uses its land for crops suited to its weather, such as tropical fruit, it makes more per hectare. It can then trade some of that output for wheat.
A third, variety, would also be accepted: trade gives buyers goods they cannot make at home.
What to study next
Read comparing trade restrictions by mechanism, then test yourself in the globalisation and trade practice set.
If you want a teacher to ask the why question with you, see online one-to-one Economics tuition.