Question

The gains from trade are a. a result of more efficient resource allocation than would be observed in the absence of trade. b. evident in economic models, but seldom observed in the real world. c. evident in the real world, but impossible to capture in economic models. d. based on the principle of absolute advantag

Answer 1

Answer:

The answer is: a

Explanation:

Gains from trade arise as a result of comparative advantages. A country has a comparative advantage if it is able to produce a good or provide a service more efficiently than another country given its resources. A country has an absolute advantage if it can produce more of a good or provide more of a service given that the resource quantities are the same. Gains from trade increase the consumption possibilities of a country by increasing specialisation in areas where the country has comparative advantages and trading in areas where they do not have comparative advantages. Gains from trade are evident in the real world as countries have entered into trade agreements to foster such gains, a prominent example would be the European Union.