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Gains from Trade - Quick Revision Overview

AS, A-Level, IB
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.

Gains from Trade - Quick Revision Overview

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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