Why do countries trade with each other?
Show answer & explanation
Answer: Specialization saves resources
To make diplomatic friends — Wrong. While trade can improve relations, that's not the economic reason. Countries trade because it's more efficient than making everything themselves.
Specialization saves resources ✓ — Correct! Each country focuses on what it does best, then trades with others. Japan makes cars efficiently, Brazil grows coffee well, Saudi Arabia has oil. By specializing and trading, everyone gets more goods at lower cost than making everything alone. Economists call this comparative advantage.
Move goods long distance — Wrong. Moving goods long distance is a cost of trade, not the reason for it. Countries trade because specialization makes production more efficient overall.
Go deeper: Comparative advantage
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