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Consider the simple Ricardian model with two countries and two goods, and explain carefully why, when...

Consider the simple Ricardian model with two countries and two goods, and explain carefully why, when two countries trade, the smallest of the two countries is more likely to enjoy large gains from trade.

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Answer #1

The smaller the country, higher are it's gain as in small size it is relatively easier for them to specialize in any one commodity's production and export the surplus production to a large country.

Whereas larger countries have to specialize in more than one good because exporting only one good to smaller country wouldn't bring the profit as continuous export of only one good to small number of population will reduce its demand with time. So the smaller the size of the country, the larger the gain from trade.

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