Why might international trade result in lower prices for consumers?

International trade can result in lower prices for consumers due to increased competition and economies of scale.

International trade introduces a larger number of competitors into the market, which can drive down prices. When domestic companies are faced with foreign competitors, they are often forced to lower their prices in order to remain competitive. This is particularly true in industries where the products are relatively standardised, such as electronics or clothing. In these markets, price is often the main differentiating factor between products, so companies must keep their prices low to attract consumers.

Furthermore, international trade can lead to economies of scale, which can also result in lower prices for consumers. Economies of scale occur when the cost per unit of a product decreases as the quantity of the product produced increases. This is because the fixed costs of production, such as the cost of machinery or buildings, can be spread over a larger number of units. When companies are able to sell their products in international markets, they can produce and sell larger quantities, which can lead to significant economies of scale. These cost savings can then be passed on to consumers in the form of lower prices.

In addition, international trade can lead to lower prices by increasing the availability of cheaper inputs. For example, a company might be able to source cheaper raw materials from a foreign country, or it might be able to outsource some of its production to a country where labour costs are lower. These cost savings can also be passed on to consumers.

Finally, international trade can result in lower prices by promoting technological advancement and innovation. When companies are exposed to international competition, they are often forced to innovate in order to stay competitive. This can lead to the development of more efficient production methods, which can reduce costs and lead to lower prices for consumers.

Therefore, through increased competition, economies of scale, access to cheaper inputs, and promotion of technological advancement, international trade can result in lower prices for consumers.