A Primer On Trade: Required Conditions, Gains, And Consequences

This paper is intended to teach students, business managers, and policy makers about the fundamentals of trade. Whether it is between countries, firms, or individuals, the basics are universal. We start by describing the production possibility frontier. This frontier defines the combinations of maximum possible outputs in a two product system. Such a model can be expanded to more than two products; however, the two product model demonstrates the important aspects of production and avoids unnecessary complexity. Next, we introduces the concept of consumer preferences as this societal attribute determines what is eventually produced and consequently consumed in a closed system without trade. The no trade restriction is then relaxed and the potential advantages of trade are highlighted. Product price ratios must be within a suitable range to allow trade because traders do not typically trade their products directly for other products. These concepts are demonstrated with appropriate graphics. The next two sections state conclusions and policy implications. The paper concludes with suggestions for assessing student learning outcomes. At the end of the paper, there are several example practice problems and solutions related to the paper’s content