The effects attributed to the decline in the volume of trade in a large nation,considered independently of changes in terms of trade,will
A)reduce the nation's welfare
B)increase the nation's welfare
C)not change the nation's welfare
D)have ambiguous outcomes with respect to gain or loss of welfare

Question

Quizplus · Accepted Answer

The decline in the volume of trade will reduce the nation's welfare as it implies that there is a reduction in the exchange of goods and services, leading to a decrease in the consumption and production of goods and services domestically. This reduction in trade can lead to a decrease in specialization, thereby reducing efficiency and increasing the costs of production. Furthermore, domestic firms will face less competition, leading to a decrease in innovation and an increase in prices of goods and services, ultimately reducing consumer welfare.

The Effects Attributed to the Decline in the Volume of Trade