Countries trade with each other because of the simple reason that countries have different types and number of resources and that the costs of using these resources also vary from country to country. These resources are land, labor, capital and entrepreneurship. As each country tries to generate wealth by optimizing their available resources, each country will concentrate on and specialize in the products that they can efficiently produce from their available resources. Countries then would generate wealth by exporting and trading the surplus of these specialized products with other specialized products from different countries. .
International trading is the process by which countries export their specialized products to other countries at the same time import specialized products from other countries into their own country. Trading internationally with other countries is advantageous because it maximizes the use of resources due to specialization of production to the products that can be most efficiently produced from limited resources. .
International trading however has its limitations. There are several questions that need to be answered first when trading internationally. These questions include which country to trade with, what products are to be exported and what products are to be imported, when are trade tariffs and quotas imposed, and when to enter into trade agreements with other countries.
The question of what products are to be exported and/or imported can be answered by studying the Production Possibility Frontier (PPF) and determining opportunity costs and comparative advantages in production. The Production Possibility Frontier is a graph that shows the maximum combination of outputs from a given number of inputs. This means that if you have limited amount of resources and you want to have two product outputs, then the PPF will show you the maximum combination of these two products.