Consider two countries Pakistan and USA trading with each other, with Pakistan exporting garments to USA and USA exporting aircrafts to Pakistan. Use the Standard Trade Model to illustrate the gains from trade between USA and Pakistan, assuming that USA has an abundant supply of capital relative to Pakistan and Pakistan is rich in labor resources. 

Assume also that consumer preferences for both goods (garments and aircrafts) are similar in the two countries and trade is costless.

Answer rating: 100% (QA)

In the Standard Trade Model countries specialize in producing goods in which they have a comparative ... View the full answer