Why does the gravity model work?
A) Large economies became large because they were engaged in international trade.
B) Large economies have relatively large incomes, and hence spend more on government promotion of trade and investment.
C) Large economies have relatively larger areas, which raises the probability that a productive activity will take place within the borders of that country.
D) Large economies tend to have large incomes and tend to spend more on imports.
E) Large economies tend to avoid trading with small economies.

Question

Quizplus · Accepted Answer

The gravity model of trade posits that larger economies, due to their higher levels of income, have a greater capacity and tendency to engage in trade, including spending more on imports. This is because their size often correlates with a higher demand for a variety of goods and services, some of which need to be sourced from abroad.

Why Does the Gravity Model Work