Publisher Summary This chapter provides an overview of international trade. All nations gain from international trade. The theory of comparative advantage holds that mutually advantageous trade is based on differences in opportunity costs. The country with the lowest opportunity cost exports. Trade that follows this rule is good for both sides and increases total production and consumption. Tariffs are a tax on imports. Quotas are a physical import limitation; they create a shortage and drive up prices. Most economists favor free trade. The arguments against free trade center on protection, national defense, competition problems, and infant industries. Consumers bear most of the tariff burden on goods with an inelastic import demand (few domestic substitutes). Tariffs translate into price increases for these goods. Producers pay a larger share of the tariff on goods with elastic import demand. The balance of payments and the balance of trade are two ways of accounting for international payments.