Static and dynamic gains from trade. The principle of comparative advantage states that a country has a comparative advantage in producing a good if it produces that good with a lower opportunity cost than the other country. the terms of trade gain. All are advantages of foreign trade EXCEPT: A. A) all countries can gain from trade if they export goods for which they have an absolute advantage. First, if the opportunity costs are equal between the two countries, there is nothing to gain from specialization, the countries are identical and there is no benefit from producing the good abroad rather than at home. Benefits of trade extend beyond the immediate buyers and sellers. Both the countries can achieve gains from the trade because the trade is largely based on the principle of comparative advantage. e. When as a result of foreign trade, a country moves from a lower indifference curve to a higher one, it implies that the welfare of the people has increased. C) all countries can gain from trade if they export goods for which they have a comparative advantage. 9. To show the static gains from trade, let us take an example – Suppose two commodities, cloth and wheat, are produced in two countries, India and U.S.A., before they enter into trade. The terms of trade gain is defined as the additional gain created by the distortion on the market, or rectangle e = 2.5. If a trade was bad, the countries simply reject it, it is a consensual trade. Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods. Efficiency loss is defined as the loss caused by the tariff in the market, or triangles b + d = 1.25. Any two countries could gain from trade thanks to their absolute or comparative advantage in producing some good. Trade makes firms behave more competitively, reducing their market power. Cost ratios are different B. Two countries can gain from foreign trade if: A. Suppose that Foreign had been a much larger country, with domestic demand Countries that engage in international trade benefit from economic growth and a rising standard of living. All firms can take advantage of cheap labor. Tariff rates are different C. Price ratios are different D. (a) and (c) of above ANSWER D 15. The gains from trade can be clad into static and dynamic gains from trades. According to the theory of comparative advantage, countries gain from trade because a. 10. This is one of the advantages of international trade that may be difficult to quantify and, therefore, easy to ignore. First, trade gives countries access to physical capital (technology, … As a result, the country importing gains by importing cheap goods. 7. Nations compete C. Cheaper goods D. Optimum utilisation of country's resources ANSWER A 14. B) one country can gain from trade only at the expense of another country. Static Gains means the increase in social welfare as a result of maximized national output due to optimum utilization of country's factor endowments or resources. This occurs in two ways. Successes in one country can influence success in other adjacent countries, which can raise your company's profile in your market niche. D) all countries lose from international trade The benefits of international trade have been the major … 13. People get foreign exchange B. Differences in opportunity cost allow for gains from trade. International trade - International trade - Simplified theory of comparative advantage: For clarity of exposition, the theory of comparative advantage is usually first outlined as though only two countries and only two commodities were involved, although the principles are by no means limited to such cases. b. c. Output per worker in each firm increases. 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