Suppose that a country that has a high level of output per person agrees to trad

Question

Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit? Suppose that a country that has a high level of output per person agrees to trade with a country that has a low level of output per person. Which country can benefit?

Explanation / Answer

Trade is exchang of goods, both consumer and capital, and services across the international borders of a country. The benefit that one country accrues from trade is called gains from trade. Trade in any country is subject to economic restructuring. Economic restructuring refers to changes in the economy that may require some industry to grow and other to shrink even disappeared altogether.

Two country can trade and gain according to relative of absolute cost advantages of producing a good. The absolute advantage in producing a good implies that the country has highest productivity in producing that particular good. A country has comparative advantage in a good if its opportunity cost of producing a good is lower than those of its trading partners. The concept of comparative advantage is based on the idea that nations maximize their material well-being when they use their resources where they have their highest value.

Therefore, a country can gain from trade, irrespective of their output, if it put its resources in best use and import those goods which is costly producing at home. Trade can benefit both the countries in this case.

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