Read the passage and answer the questions:
International Trade
International trade is the result of specialisation in production. It is based on the principle of comparative advantage, complimentarity and transferability of goods and services. Undertaking international trade is mutually beneficial to nations if it leads to regional specialisation, higher level of production, better standard of living, worldwide availability of goods and services, equalisation of prices and wages and diffusion of knowledge and culture.
International trade can prove to be detrimental to nations if it leads to dependence on other countries, uneven levels of development, exploitation, and commercial rivalry leading to wars. Global trade affects many aspects of life; it can impact everything from the environment to health and well-being of the people around the world. As countries compete to trade more, production and the use of natural resources spiral up, resources get used up faster than they can be replenished.
As a result, marine life is also depleting fast, forests are being cut down and river basins sold off to private drinking water companies. Multi-national corporations trading in oil, gas mining, pharmaceuticals and agri-business keep expanding their operations at all costs creating more pollution – their mode of work does not follow the norms of sustainable development. If organisations are geared only towards profit making, and environmental and health concerns are not addressed, then it could lead to serious implications in the future.
In which of the following cases does a nation benefit most in international trade?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → When export is more than import.
Option (1) When import is more than export. — Incorrect. Then the country has a negative or unfavourable balance of trade. It spends more on buying goods than it earns by selling, which in the end exhausts its financial reserves.
Option (2) When export is more than import. — Correct. If the value of exports is more than the value of imports, the country has a positive or favourable balance of trade. It earns more from the world than it pays to it, so the surplus adds to its financial reserves instead of draining them.
Option (3) When they trade raw materials. — Incorrect. Raw materials fetch less than the value-added finished products made from them, so the seller of raw materials gains less, not more.
Option (4) When the trade is taking place between countries located in two different hemispheres. — Incorrect. The gain from trade depends on the value of exports against imports, not on where the partners lie on the globe.
NCERT (2025-26): “Balance of Trade Balance of trade records the volume of goods and services imported as well as exported by a country to other countries. If the value of imports is more than the value of a country’s exports, the country has negative or unfavourable balance of trade. If the value of exports is more than the value of imports, then the country has a positive or favourable balance of trade. Balance of trade and balance of payments have serious implications for a country’s economy. A negative balance would mean that the country spends more on buying goods than it can earn by selling its goods. This would ultimately lead to exhaustion of its financial reserves.” |