The gains from trade creation is likely to be larger for a country if:
A)its import demand curve is relatively elastic.
B)it mainly imports primary products.
C)the country's government sufficiently subsidizes the production of its exportable goods.
D)the supply of the imported good by the foreigners is relatively inelastic.

Question

Quizplus · Accepted Answer

A relatively elastic import demand curve means that the country is more sensitive to changes in prices of imported goods. If trade is created with a country that can produce the imported good at a lower price, this will result in lower prices for the imported good, leading to a larger increase in quantity demanded. Thus, the gains from trade creation will be larger for a country with a relatively elastic import demand curve.

The Gains from Trade Creation Is Likely to Be Larger