Why is it mutually beneficial for both countries to trade with each other? Select one – the most appropriate answer given the provisions of Ricardian model of international trade.

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BlackTom AI · Accepted Answer

Exploring the question through the lens of the Ricardian model, we look at what trade affords each country in terms of consumption possibilities and relative efficiency.
Option 1: 'No right answer.' This is not accurate, because the Ricardian framework clearly explains that there are gains from trade due to comparative advantage, so at least one statement in the options aligns with that idea.
Option 2: 'Because they both can expand the overall production of both goods.' In the Ricardian model, trade does not imply that both countries can simultaneously increase the production of both goods beyond their own PPFs. Each country trades to specialize according to comparative advantage, which can raise global production, but not by each country expanding production of both goods at once. The claim is therefore misleading about how production and specialization work under trade.
Option 3: 'Because they both can expand the overall consumption and get more of an imported good than they could have produced themselves given the same labor unit requirement.' This aligns with the core insight of the model: by specializing according to relative productivity and trading, each country can reach a higher indifference curve, i.e., consume more than its own production would allow. The phrase about expanding overall consumption and obtaining goods they could not efficiently produce domestically captures the essence of gains from trade under comparative advantage, given the same labor costs.
Option 4: 'Because they both can expand the consumption of an internally manufactured good.' This misstates the mechanism: gains from trade arise not from consuming more of an internally manufactured good per se, but from consuming a more diverse bundle produced elsewhere and traded for, made possible by comparative advantage. The focus on an internally manufactured good narrows the explanation and does not reflect the general rationale for mutual gains through trade.
In summary, option 3 uniquely reflects the Ricardian rationale: trade expands each country’s consumption possibilities by specializing and exchanging goods, yielding higher overall consumption than self-sufficiency would provide, given comparable labor inputs.

econ_420_120255_249094 Lesson 3 Quiz

Why is it mutually beneficial for both countries to trade with each other? Select one – the most appropriate answer given the provisions of Ricardian model of international trade.

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