The gains from trade are larger for a particular country if the post-trade relative price settles closer to the pre-trade relative price of the other country.

Question

Quizplus · Accepted Answer

The gains from trade are larger when both countries specialize in producing the goods and services in which they have a comparative advantage, leading to more efficient production and increased output. If the post-trade relative price settles closer to the pre-trade relative price of the other country, it indicates that the terms of trade have improved for that country, and it is able to obtain more imports for a given amount of exports. This increases the overall welfare gains from trade for both countries.

The Gains from Trade Are Larger for a Particular Country