A nation realizes maximum gains from trade at the point where the international terms-of-trade line is tangent to its community indifference curve.

Question

Quizplus · Accepted Answer

This statement is true because when the international terms-of-trade line is tangent to the community indifference curve, the nation is able to specialize in the production of goods and services that it has a comparative advantage in and trade with other nations for goods and services that it lacks a comparative advantage in, thereby maximizing gains from trade.

A Nation Realizes Maximum Gains from Trade at the Point