International trade affects the economy by increasing the Aggregate Demand (AD), as well as becoming a source for production. International trade, based on the theory of comparative advantage, will improve efficiency in allocating resources, and allow firms to reach economies of scale, thereby competing with competitive prices in international markets. When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve …
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…long run international trade is extremely beneficial for economic stability, and a higher standard of life. References Savitt, W. & Bottorf, P. (1995). Global Development. Library of Congress Online Catalog 1995. <Tab/>retrieved on May 10, 2005 from the World wide Web: http://www.loc.gov/ Van Welsum, D. (2003). International trade in Services: Issues and Concepts. Retrieved on May 10, 2005 from the World Wide Web: http://www.econ.bbk.ac.uk/wp/ewp/ DvWTradeinservices.pdf