The two-country partial equilibrium model of international trade shows that:
A) in markets where a country is an importer, consumers lose welfare when free trade is established.
B) in markets where a country is an exporter, consumers gain and competing domestic producers lose welfare when free trade is established.
C) there are net gains from trade in each individual market when free trade is established.
D) all of the above.

Question

Quizplus · Accepted Answer

The two-country partial equilibrium model of international trade concludes that there are net gains from trade in each individual market when free trade is established. This is because both countries can specialize in producing the goods that they have a comparative advantage in and trade with each other, leading to increased efficiency and consumption possibilities for both countries. Option A and option B are incorrect because they describe scenarios where one group—either consumers or domestic producers—loses welfare, which is not reflective of the overall outcome of international trade according to the model.

The Two-Country Partial Equilibrium Model of International Trade Shows That