Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
5th Edition
ISBN: 9781337192712
Author: William A. McEachern
Publisher: Cengage Learning
Question
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Chapter 19, Problem 1.1P
To determine

To Explain:

Despite the absence of comparative advantage how can two countries engaged in trade will experience gain from trade.

Concept Introduction:

Gains from trade: The increase in welfare in the economy of the countries engaged in trade because of it.

Expert Solution & Answer
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Explanation of Solution

Comparative advantage is not the only basis of trade. There could be other reasons for which trade can take place between two countries. These include decreasing costs or increasing returns, difference in tastes or demand, economies of scale and technological changes. Therefore, even when two countries do not have comparative advantage based on any of the stated reasons, opportunities for trade can arise and they may experience gain from trade.

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