Today, the term ‘trade’ is used for transactions that involve multiple parties participating in the voluntary negotiation and exchange of one's goods and services for desired goods and services of another party. The advent of money as a medium of exchange has allowed trade to be conducted in a manner that is much simpler and effective compared to earlier forms of trade, such as bartering, which is the act of trading goods and services between two or more parties without the use of money.

Trade has evolved considerably over time; however, the basic elements of buying and selling in some form of a market have not changed, because ultimately, trade still involves transferring the ownership of goods from one person or entity to another.

ABSOLUTE AND COMPARATIVE ADVANTAGE

One of the major benefits of trade was described by Adam Smith in ‘An Inquiry into the Nature and Causes of the Wealth of Nations’. First published in 1776, this theory states that free market economies are more productive and beneficial to their societies and that nations can only benefit from one another if free trade is practised. The main argument here is that a country can produce goods or services at a lower cost per unit than the cost at which another country produces that good or service.

Later in 1817, David Ricardo described in his publication ‘On the Principles of Political Economy and Taxation’ how two countries, or any kind of different parties, can both benefit from trade if, in the absence of trade, they have different relative costs for producing the same goods. David Ricardo illustrated the importance of comparative advantage in an example involving the trade of cloth and wine between England and Portugal in order to describe how productivity levels dictate the patterns of trade.