The source of gains from trade is _____.

Question

Quizplus · Accepted Answer

The source of gains from trade is comparative advantage, where countries specialize in producing the goods and services they are relatively most efficient in producing, and trade with each other. This allows for both countries to consume beyond their individual production possibilities frontiers, resulting in gains from trade. Tariff revenue is a possible outcome of trade, but it is not the source of gains from trade. Self-sufficiency leads to limited productivity and higher costs, thus reducing gains from trade. Absolute advantage is when a country is able to produce a good or service more efficiently than another country, but it doesn't necessarily lead to gains from trade as there might not be a good or service of comparative advantage to trade with the other country. Terms of trade are the ratio at which countries exchange goods, but they don't necessarily lead to gains from trade on their own.

The Source of Gains from Trade Is _____