When trade is based on comparative advantage

Question

Quizplus · Accepted Answer

When trade is based on comparative advantage, both trading partners end up better off than when there is no trade. This is because each trading partner specializes in the production of the good in which they have a comparative advantage, and then trades with the other country to obtain the other good(s) they need at a lower cost than they would have been able to produce it themselves. This leads to increased efficiency and productivity, and expands the total output available for both countries to consume. Therefore, both trading partners benefit from trade, and there is a net gain from trade.

When Trade Is Based on Comparative Advantage