Topic Videos
Gains from Trade - Quick Revision Overview
- Level:
- AS, A-Level, IB
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 2 Oct 2020
In this video we consider potential gains from trade and look at the export patterns of a cluster of countries.
First constructed by David Ricardo in the 19th century, the theory of comparative advantage, specialisation and trade is a powerful one.
- Nations identify areas of comparative advantage
- They might specialise scarce resources in these industries
- This potentially creates a surplus of output
- This surplus can then be exported
- Revenues from exports can then help finance essential imports
- Trade creates potential gains in consumer welfare
- Trade is also a stimulus to economic growth and jobs
- Which can lead to positive multiplier effects
- And positive accelerator effects on capital investment
Static gains from trade
- More allocatively efficient allocation of resources
- Gains in productive efficiency from economies of scale
- Lower prices for consumers increases real incomes
Dynamic gains from trade
- Wider consumer choice
- Increased market contestability
- Transfers of ideas / knowhow
- Faster pace of innovation
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