Question

In: Economics

Gains to a country from free trade in the neo-classical theory arise due to a higher level of utility and specialization in production.

True or False, and Explain why

Gains to a country from free trade in the neo-classical theory arise due to a higher level of utility and specialization in production.

Solutions

Expert Solution

Ans. True

Reason - As per neo classical theory, free trade helps the countries to become specialist at production of certain goods which they can produce at a lesser cost than other nations. But they also believed that there is increased marginal cost when shifting factors of production across nations.

This increased specialisation boosts the consumption leading to higher level of utility.

Rahul Sunny answered 2 years ago
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