Chapter 3: Problem 1

What are the effects of transportation costs on international trade patterns?

Short Answer

Expert verified

Transportation costs influence the cost of imported goods and services, affecting their competitiveness. High transportation costs can discourage trade by making imported goods more expensive compared to local products. Conversely, low transportation costs can stimulate trade by making foreign goods cheaper and more attractive. These cost changes can shift international trade patterns, influencing trading partners, types of goods traded, and trade volumes.

Step by step solution

Define international trade patterns

International trade patterns refer to the way in which different countries interact in terms of import and export of goods and services. The patterns reveal the types of products being traded, the volume of trade, and the countries with which trade is being conducted.

Understand the role of transportation

Transportation is a pivotal part of international trade as it enables the movement of goods and services between different locations. Any cost associated with transportation has a direct effect on the cost of goods and services traded internationally.

Identify how transportation costs affect trade decisions

High transportation costs can make imported goods more expensive and less competitive compared to local products, which could discourage trade. On the other hand, lower transportation costs can encourage companies to source for cheaper goods from overseas, stimulating trade.

Analyze the impact on the pattern of trade

Changes in transportation costs can shift international trade patterns. Countries might choose to shift trading partners if they find lower transportation costs elsewhere. It can also influence the type and volume of goods traded. For example, if the cost of transporting heavy goods is high, countries may opt to trade less bulky and lighter items.

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