CFA Level I · CFA Level I Exam · International Trade
Which statement about the gains from trade is most accurate?
Trade produces positive total gains, so winners could in principle compensate those who lose. It does not benefit every individual, because import-competing producers may lose. Gains depend on differences in comparative advantage rather than on any absolute advantage.
- ATrade raises every individual's welfare in each country
- BTotal gains are positive, so winners could compensate losersCorrect
- CGains arise only when one country has an absolute advantage
Explanation
Trade creates aggregate gains because the winners' gains exceed the losers' losses, so winners could in principle compensate losers. Not every individual benefits, since import-competing producers and factors can lose. Gains arise from differences in comparative advantage, not absolute advantage.
Did you get it right without looking?
One question tells you little. A timed set on International Trade shows your real accuracy, how long you take and where you lose marks.
More International Trade questions
- A country's national saving is less than its domestic investment. This situation is most likely associated with a:
- According to the Heckscher-Ohlin model, a country with abundant capital and scarce labor is most likely to:
- Two countries have similar factor endowments, yet each exports and imports differentiated cars to and from the other. The explanation most c…
- A country protects its domestic farm sector by arguing it must maintain food production capacity in case of war or a trade embargo. This rat…
- Under the Ricardian model of trade, the source of comparative advantage is differences in:
- A country is a large importer of a good and imposes a tariff that lowers the world price of that good. The country's net national welfare ef…