32.1 The Gains from Trade

An economy that engages in international trade is called an open
economy ; one that does not is called a closed economy. A situation in
which a country does no foreign trade is called one of autarky.

Although politicians often regard foreign trade differently from domestic
trade, economists from Adam Smith on have argued that the causes and
consequences of international trade are simply an extension of the
principles governing trade between domestic firms and individuals. What
are the benefits of trade among individuals, among groups, among
regions, or among countries?

Interpersonal, Interregional, and

International Trade

To begin, consider trade among individuals. Without trade, each person
would have to be self-sufficient: Each would have to produce all the food,
clothing, shelter, medical services, entertainment, and luxuries that he or
she consumed. Because no individual could effectively produce such a
large range of products, a world of individual self-sufficiency would be a
world with extremely low living standards: individuals would work very
hard but not be able to produce or consume very much.

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