A country that does NOT engage in trade can benefit from trade only if

Question

BlackTom AI · Accepted Answer

To assess when a country that does not engage in trade can still benefit from trading, we need to recall the core idea of gains from trade: being able to specialize and trade only yields benefits if the relative prices (or opportunity costs) in autarky differ from those in the world (free-trade) economy.
Option A: 'pre-trade and free-trade relative prices are not identical.' If the country’s autarky relative prices differ from world relative prices, it can gain by shifting to trade, because it can specialize and exchange at more favorable terms than its own autarky would allow. This aligns with the standard gains-from-trade condition based on price (opportunity cost) differences.
Option B: 'pre-trade and free-trade relative prices are identical.' If relative prices are identical, there is no incentive or potential benefit to reallocate production toward trade, since the terms of trade would not improve welfare beyond autarky. Therefore, this option describes a scenario with no potential gains, making it incorrect.
Option C: 'it employs a unique technology.' While a unique technology could influence efficiency or production possibilities, the fundamental condition for gains from trade does not require a unique technology on its own. Trade benefits arise from relative price differences and comparative advantages, not merely from possessing a unique technology in isolation, so this is not the key criterion.
Option D: 'its wage rate is below the world average.' A wage differential might affect cost structures, but gains from trade depend on relative prices and opportunity costs across goods, not solely on a single country's wage level. This description does not establish the necessary condition for obtaining gains from trade.
Option E: 'it has an absolute advantage in at least one good.' Having an absolute advantage is not the criterion for benefiting from trade. Even countries without any absolute advantage can gain from trade if they have a comparative advantage in some goods and if relative prices differ. Thus this option misstates the core concept.

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A country that does NOT engage in trade can benefit from trade only if

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