sing the principle of comparative advantage, countries derive whether it would be beneficial to start trading and if so, if it should export or import. Take for instance the market for wheat. The wheat industry is large seeing that it is produced in many countries making it a good example in terms of analysing the gains and losses a country may experience as a result of trade. For example, Country A’s market for wheat is isolated from the world market. There are no transactions be it exports or imports and the market for it is comprised uniquely by its domestic buyers and sellers. The diagram overleaf depicts the market equilibrium without international trade: (b) In an economy like Country A’s, domestic supply and demand are balanced by adjusting the price. In the absence of international trade consumer and producer surplus are in equilibrium. To determine whether or not Country A should trade with other countries the domestic price of wheat should be compared to that of other countries, commonly known as the world price. If the domestic price of wheat is lower than the world price then Country A becomes an exporter of wheat seeing that domestic wheat producers take advantage of the increased foreign prices and begin selling to other countries. By contrast, if Country A’s domestic price of wheat were higher than the world price then it becomes an importer of wheat since consumers are eager to buy cheaper wheat from abroad. The principle of comparative advantage is a key element as far as trade is concerned. By considering the domestic price in relation to the world price of wheat Country A derives whether or not it has a comparative advantage in producing it. The opportunity cost of wheat is derived from the domestic value. In other words, how much of another good Country A has to sacrifice in order to produce one unit of wheat. A low production price of wheat states that Country A has a comparative advantage to the rest of the world. Conversely, if Country A has a high production value, other countries have a comparative advantage. Diagram (b) shows the domestic equilibrium price and quantity for wheat during pre-trade conditions. Once Country A starts trading, the domestic price increases to reach the world price level. This is to say that domestic producers will now sell at this new increased price which in turn forces consumers to pay more. This is shown by the diagram below:>