New trade theory

Hi kiddo! Today we are going to talk about something called new trade theory.

Do you know what a country does when it needs something that it doesn't have? It buys it from another country, right? For example, if our country doesn't grow bananas but we love to eat them, we can buy them from another country that grows a lot of bananas. This is called international trade.

Now, new trade theory is a way of thinking about international trade that explains why certain countries are good at making certain things. Do you remember the story of the Tortoise and the Hare? The Tortoise was very slow but he still won the race because he was good at one thing - being steady. It's the same for countries. Some countries are good at making certain things because they have a special advantage.

This special advantage is called economies of scale. It sounds like a big word, but it just means that when a company makes a lot of something, it can make it cheaper. For example, if you have a factory that makes a lot of shoes, you can buy materials in bulk and use machines that are very efficient. This way, you can make each pair of shoes for less money than if you only made a few pairs.

So, when we think about international trade, it's not just about buying and selling things. It's also about which countries are good at making certain things because of their special advantages. This is why some countries specialize in making cars, while others specialize in growing bananas or making clothes.

I hope that helps you understand what new trade theory is all about!