Topic Videos
Gains from Trade - Key Assumptions
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 2 Oct 2020
Trade theory at A-level and IB rests upon several important assumptions. This video provides a brief summary of them and how they can be challenged for strong evaluation.
Assumptions behind the standard theory of comparative advantage, specialisation and trade
- Constant returns to scale – i.e. no economies of scale – which might amplify (increase) the gains from trade
- Factor mobility between industries (geographical + occupational mobility) workers are assumed to be equally productive in whatever industry / job they do and then can switch work easily
- No trade barriers such as import tariffs and import quotas and other trade frictions (non-tariff barriers)
- Low transportation costs to get products to market – high logistics costs might erode any comparative advantage between nations
- No externalities from production and/or consumption
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