Question

Apart from the gains from comparative advantage, what other benefits does a nation gain from trade?

Answer 1

Absolute advantage defines a situation where more of a product or service can be created by an person , company or country than by any other producer with the same amount of resources.
For example , the United States has skilled labor force, plentiful natural resources and advanced technology. The US can produce many goods more effectively than potential trade partners because of these three factors, giving it an overwhelming edge in the manufacture of products from corn to machines, to maple syrup and automobiles. It does not, however, mean that the US does not profit from trading for these commodities with other nations.

Production specialization on the basis of competitive advantage, not absolute advantage, results in trade incentives leading to possibilities for use beyond PPC. Trade between two agents or countries enables the countries to enjoy a higher overall production and consumption level than would have been possible at home.

Static trade benefits are calculated by increased utility or degree of welfare when trade between countries is opened up. Under conventional economics the rise under utility or benefit is calculated by curves of indifference. When a country moves from a lower curve of indifference to a higher one as a result of foreign trade, that implies that people's welfare has increased.

Such dynamic trade gains apply to trade benefits that accrue to countries over time because trade stimulates a country's economic growth and increases the output of a country's resource utilization. It is this exchange that makes possible the division and specialization of labor, in which higher productivity is so widely centered in the various countries.