If an economist argues that everyone gains from trade, what reasoning is most likely underlying her argument?

Question

Carina Nicholson

Business

6 November, 06:30

If an economist argues that everyone gains from trade, what reasoning is most likely underlying her argument?

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Answers (1)

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Jimmy Wall · Answer 1

If an economist argues that everyone gains from trade, the following reasoning is most likely underlying her argument:

Production according to the principle of comparative advantage lowers overall costs and therefore allows both countries to have a higher standard of living.

Explanation:

The comparative advantage refer to the situation in which an individual, company or a country offers its services and products at a lower rate as compared to its competitor. This leads to trade-off as you have to comprise for the gain of something. This comparative advantage also increase the dependencies of nations or companies on each other. For example, England and Portugal has benefited from this comparative advantage concept as England get the wine at lower cost from Portugal and Portugal also get earning by selling this wine to England.