Consider a simple model with two countries and two goods, where there is no production but each country has a fixed end...

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Consider a simple model with two countries and two goods, where there is no production but each country has a fixed endowment

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Answer 1

Answer #1

With trading , countries can expand their consumption bundle. People can consume more variety of goods also can consume that they care about.

with no trade , country will have bundle A , at this bundle individuals will have utility u1 but with trading allowed they can exchange goods and consume at B where their utility increases (as this country is more induced toward consuming good y). Hence trading will make them better off.

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Answer 2

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Consider a simple model with two countries and two goods, where there is no production but each country has a fixed end...

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Consider a simple model with two countries and two goods, where there is no production but each country has a fixed end...

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