Given free trade, small nations tend to benefit the most from trade since they ?
Correct answer: D. Realize terms of trade lying near the MRTs of their large trading partners
- A. Are more productive than their large trading partners
- B. Are less productive than their large trading partners
- C. Have demand preferences and income levels lower than their large trading partners
- D. Realize terms of trade lying near the MRTs of their large trading partners
Explanation
A small country cannot significantly influence world prices, so its terms of trade are close to the large partner’s internal relative price, represented by that partner’s MRT. This lets the small country obtain relatively large gains from trade.
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