Reasons behind
Answer to Problem 32.1LO
- Gains from specialization: Economies of scale is an advantage that the country receives from specialization. With more and more production, the average cost of production decreases and total output increases.
- Gains from trade: Two countries trade with each other only when they find it to be mutually beneficial. The benefits the country receives through more production and consumption of goods because of specialization of production and international trade is known as Gains from trade. A country specializes in a production process due to absolute or
comparative cost advantage.
Explanation of Solution
Adam Smith mentioned that Gains from trade arises due to
Introduction:
International Trade: Trade between two different countries is known as international trade.
Specialization in production: A country specializes in a production process due to absolute or comparative cost advantage.
Gains from trade: The benefits the country receives through more production and consumption of goods because of specialization of production and international trade is known as Gains from trade.
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