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 greater levels of output. This increase in production can be achieved through the…
