Question

How is trade related to efficiency?

Answer 1

Improvements in production efficiency mean that countries with the same amount of resources will produce more goods and services. To put it another way, productivity increases for the provided resource endowments available for production use. To achieve changes in the quality of production, resources within the economy must be transferred between industries. This means some businesses have to expand while others have to contract. Ultimately growing sectors are expanding and contracting would depend on the underlying stimulus or trade base. Different trading models emphasize different trade stimuli.

Thus as trade opens, either the country is specialized in the products in which it has a comparative technological advantage, or production is shifted to industries which use the relatively abundant factors of the country most intensively, or production is shifted to products in which the country has relatively less demand compared to the rest of the world

Improvements in consumer efficiency arise for an individual when changes in relative prices of goods and services allow a higher level of utility for the consumer. Since the price change changes the choices a consumer has, we can say that improvements in consumer efficiency imply that there are more satisfying choices. If several varieties of products are available in a product category, as in the model of monopoly rivalry, increases in market quality will result in the consumer being able to consume higher varieties or buy a variety closer to his ideal.