Read the following statements regarding welfare gains due to trade: (i) The gains from international…
Statements (i) and (iii) are correct. Trade can generate gains from exchange at given production levels and additional gains from specialisation. Distributional effects can…
Choose your answer
Read the following statements regarding welfare gains due to trade:
(i) The gains from international trade can be split into two parts- one due to possibility of exchange and the other due to specialisation in production.
(ii) International trade always leads to increase in welfare gain.
(iii) There is welfare gain from international trade when income is redistributed optimally.
Which of the above statements are correct?
Answer and explanation
Correct answer C
Statements (i) and (iii) are correct. Trade can generate gains from exchange at given production levels and additional gains from specialisation. Distributional effects can prevent an unconditional welfare improvement, while suitable redistribution can realise the potential welfare gain.
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Jammu & Kashmir and Ladakh SET (JKSET/LASET)