Given free trade, a small country tends to benefit the most from trade because:
A) small countries are more productive than large countries.
B) small countries are less productive than large countries.
C) small countries have lower incomes than larger countries.
D) small countries will have terms of trade near the opportunity costs of the large country.
E) None of the above

Question

Quizplus · Accepted Answer

Small countries benefit from free trade because they can specialize in the production of goods for which they have a comparative advantage and then trade for other goods. This specialization allows them to trade at terms that are closer to the opportunity costs of larger countries, which often have a wider range of production possibilities. This means small countries can obtain goods more cheaply through trade than if they tried to produce everything domestically.

Given Free Trade, a Small Country Tends to Benefit the Most