Gains from trade
Definition. Gains from trade are the increases in welfare and consumption that countries obtain by specialising in goods in which they have a comparative advantage and trading for the rest. By concentrating on the goods they produce at lower opportunity cost, nations achieve higher combined output and can consume beyond their own production possibilities.
These gains are realised when the terms of trade lie between the domestic opportunity cost ratios of the trading countries, allowing both to consume outside their production possibility curves.
This term belongs to Comparative Advantage in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use gains from trade for marks in the exam? Learn it in class or message the team.