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Efficiency loss is defined as the loss caused by the tariff in the market, or triangles b + d = 1.25. The terms of trade gain is defined as the additional gain created by the distortion on the market, or rectangle e = 2.5. 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. Benefits of trade extend beyond the immediate buyers and sellers. e. It can also help increase your company's credibility, both abroad and at home. Static and dynamic gains from trade. 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. Cost ratios are different B. D) all countries lose from international trade b. Two countries can gain from foreign trade if: A. Both the countries can achieve gains from the trade because the trade is largely based on the principle of comparative advantage. This occurs in two ways. As a result, the country importing gains by importing cheap goods. This is one of the advantages of international trade that may be difficult to quantify and, therefore, easy to ignore. Any two countries could gain from trade thanks to their absolute or comparative advantage in producing some good. Suppose that Foreign had been a much larger country, with domestic demand If a trade was bad, the countries simply reject it, it is a consensual trade. Differences in opportunity cost allow for gains from trade. 4. Since trade allows each country to specialize in what they do best (i.e. Nations compete C. Cheaper goods D. Optimum utilisation of country's resources ANSWER A 14. All firms can take advantage of cheap labor. 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. First, trade gives countries access to physical capital (technology, … the opportunity cost of doing this is the smallest compared with other countries), they can all benefit from trade. Two countries can achieve gains from trade even if one country has an absolute advantage in the production of both goods. the terms of trade gain. Countries that engage in international trade benefit from economic growth and a rising standard of living. Tariff rates are different C. Price ratios are different D. (a) and (c) of above ANSWER D 15. Successes in one country can influence success in other adjacent countries, which can raise your company's profile in your market niche. 9. Trade makes firms behave more competitively, reducing their market power. C) all countries can gain from trade if they export goods for which they have a comparative advantage. 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 benefits of international trade have been the major … c. Output per worker in each firm increases. B) one country can gain from trade only at the expense of another country. A) all countries can gain from trade if they export goods for which they have an absolute advantage. 10. The benefits that can be identified with Reference to International Trade are as follows: International trade allows countries to exchange good and services with the use of money as a medium of exchange. All are advantages of foreign trade EXCEPT: A. 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. 13. The gains from trade can be clad into static and dynamic gains from trades. 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. According to the theory of comparative advantage, countries gain from trade because a. People get foreign exchange B. 10. 7. d. World output can rise when each country specializes in what its does relatively best. Abroad and at home do best ( i.e do best ( i.e the additional gain created by the in! First, trade gives countries access to physical capital ( technology, even if one can! Production of both goods from international trade that may be difficult to quantify and, therefore, easy ignore! What they do best ( i.e any two countries can achieve gains from trade at! Technology, Optimum utilisation of country 's resources ANSWER a 14 beyond the immediate buyers sellers. 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