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Countries are indulged in trade because there are mutual gains from trade. But then, what are these gains which they obtain, and how are these realized? Comparative advantage theory provides the answers to such questions. The theory says that countries will gain by specializing in it and then exporting the good they have a comparative advantage or lower opportunity of the cost advantage in.
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Q. It is probable that trade based on external scale economies can leave a country worse off than it could have been without trade. Illustrate how this could happen. Answer:
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