Given free trade, small nations tend to benefit the most from trade since they
A) are more productive than their large trading partners.
B) are less productive than their large trading partners.
C) have demand preferences and income levels lower than their large trading partners.
D) enjoy terms of trade lying near the opportunity costs of their large trading partners.

Question

Quizplus · Accepted Answer

Small nations tend to benefit the most from trade when they enjoy terms of trade lying near the opportunity costs of their large trading partners. This means that the small nation can produce goods that have a lower domestic opportunity cost than their large trading partner, and therefore can trade those goods for goods that have a higher domestic opportunity cost. This increases the overall efficiency of production and consumption for both parties.

Given Free Trade, Small Nations Tend to Benefit the Most