Question

Which of the following statements is false?

a. The gains from trade can be broken down into the gains from specialisation in production and the gains from international exchange.
b. Gains from international exchange can result even without specialisation in production.
c. Gains from specialisation in production can result even without international exchange taking place.
d. The total gains from trade are can never be equal to the gains generated from exchange in the international markets.

Answer 1

The false statement is d. The total gains from trade can be equal to the gains generated from exchange in the international markets.

Step-by-step explanation:

a. This statement is true. The gains from trade can be broken down into the gains from specialisation in production and the gains from international exchange.

b. This statement is also true. Even without specialisation in production, countries can still gain from international exchange through trade in goods and services that they do not produce efficiently or at all.

c. This statement is also true. Even without international exchange, a country can gain from specialisation in production by focusing on producing the goods and services that it can produce most efficiently.

d. This statement is false. The gains from trade can be equal to the gains generated from exchange in the international markets if the terms of trade are favourable for both parties. For example, if both parties benefit equally from the exchange, then the total gains from trade will be equal to the gains generated from exchange in the international markets.