Gains from trade arise because of what?

Gains from trade arise because of what?

• A. Self-sufficiency yields more.
• B. Trade reduces total productivity.
• C. Specialization allows greater overall output.
• D. Trade eliminates all risk.

Answer: (C)

Gains from trade come from specialization and comparative advantage, where people and countries focus on what they’re relatively best at producing. By concentrating on those tasks, overall output rises because each producer lowers their opportunity costs and becomes more efficient. When everyone produces more efficiently, exchanging what they produce allows everyone to consume a larger, more varied set of goods than they could on their own. That’s why specialization leads to greater total output and, through trade, more welfare for all involved. Self-sufficiency ignores these efficiency gains, pretending total production wouldn’t be higher with division of labor. Trade doesn’t wipe out all risk, either, though it may spread some risks; the big fact is that it increases what can be produced and consumed.

Gains from trade come from specialization and comparative advantage, where people and countries focus on what they’re relatively best at producing. By concentrating on those tasks, overall output rises because each producer lowers their opportunity costs and becomes more efficient. When everyone produces more efficiently, exchanging what they produce allows everyone to consume a larger, more varied set of goods than they could on their own. That’s why specialization leads to greater total output and, through trade, more welfare for all involved. Self-sufficiency ignores these efficiency gains, pretending total production wouldn’t be higher with division of labor. Trade doesn’t wipe out all risk, either, though it may spread some risks; the big fact is that it increases what can be produced and consumed.