If a very small country trades with a very large country according to the Ricardian model,then
A) the small country will suffer a decrease in economic welfare.
B) the large country will suffer a decrease in economic welfare.
C) the small country only will enjoy gains from trade.
D) the large country will enjoy gains from trade.
E) both countries will enjoy equal gains from trade.

Question

Quizplus · Accepted Answer

According to the Ricardian model, trade allows each country to specialize in producing the goods they have a comparative advantage in, leading to gains from trade for both countries. While the small country may face competition from the large country in some industries, it will still benefit overall from being able to import goods it cannot produce efficiently and exporting goods it produces relatively better. Therefore, the small country only will enjoy gains from trade.

If a Very Small Country Trades with a Very Large