Why do countries participate in foreign trade?

• A. They can obtain goods and services that they cannot produce efficiently themselves.
• B. Foreign trade always leads to trade deficits.
• C. Countries participate in foreign trade only to increase tariffs.
• D. It allows countries to avoid specialization.

Answer: (A)

Verified step by step guidance

1. Understand the concept of comparative advantage, which explains why countries benefit from specializing in the production of goods and services they can produce more efficiently relative to others.
2. Recognize that foreign trade allows countries to obtain goods and services that they cannot produce efficiently themselves, either due to lack of resources, technology, or expertise.
3. Analyze the incorrect options: trade deficits are not a necessary outcome of foreign trade; tariffs are generally barriers to trade rather than reasons for participating; and foreign trade actually encourages specialization rather than avoiding it.
4. Conclude that the primary reason countries engage in foreign trade is to access a wider variety of goods and services at lower costs by leveraging their comparative advantages.
5. Summarize that foreign trade enhances overall economic welfare by allowing countries to consume beyond their own production possibilities.