When individuals and businesses are permitted to trade freely over a larger market area,
A) wages will decline to the level of the poorest country in the region.
B) the monopoly power of business firms will increase.
C) they will be able to produce a larger output and consume a more diverse bundle of goods.
D) businesses will be able to earn higher profits, but the income levels of individuals will decline.

Question

Quizplus · Accepted Answer

When individuals and businesses are permitted to trade freely over a larger market area, they are able to produce a larger output and consume a more diverse bundle of goods. This is due to the ability to specialize in the production of goods and services that they have comparative advantage in, and to trade with other firms and individuals who have a comparative advantage in producing other goods and services. This leads to an increase in overall welfare and standard of living. Choices A, B, and D are incorrect as they are not supported by economic theory and empirical evidence.

When Individuals and Businesses Are Permitted to Trade Freely Over