ABSTRACT
This chapter deals with the effect of international trade on a single country's welfare and demonstrates that international trade improves the potential welfare of all trading countries. International trade takes place when the pretrade marginal rates of transformation differ between countries. The relationship between the cum-trade true utility frontier and the true utility frontier under autarky is crucial, because the gains from trade will in the end depend on the relationship between these two frontiers. Conversely, it is impossible under autarky to make everyone better off than at the equilibrium free-trade point. In the limiting case where the international price ratio happens to coincide with the slope of the linear production-possibilities frontier, the consumption-possibilities frontier will coincide with the production-possibilities frontier and the cum-trade utility frontier will coincide with the autarkic utility frontier.
