Will the gains from trade be larger or smaller if one of the factors is not mobile in production? Why? Demonstrate your conclusion graphically. Is it true that if neither factor is mobile the country will receive no gains from trade? Explain.

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The Answer is The gains from trade will be smaller if one of the factors is not mobile in production. This is because when a factor is not mobile, it cannot easily move to where it is most productive, leading to inefficiencies in production. This reduces the potential gains from trade as the factor that is not mobile cannot be utilized to its fullest potential.

To demonstrate this graphically, we can use a production possibilities frontier (PPF) diagram. If one factor is not mobile, the PPF will be less efficient, leading to a smaller area of potential gains from trade compared to a scenario where both factors are mobile.

However, it is not true that if neither factor is mobile, the country will receive no gains from trade. Even if neither factor is mobile, there can still be gains from trade through specialization and comparative advantage. By specializing in the production of goods and services where they have a comparative advantage, countries can still benefit from trade, even if factors are not mobile. This is because trade allows countries to consume a combination of goods and services that is outside their own production possibilities frontier, leading to gains from trade.

Will the Gains from Trade Be Larger or Smaller If