Broader Benefits of Multilateral Trade

Steps:

• Identify the core advantage of multilateral over bilateral trade: it involves more countries, enabling wider market access.
• Recall trade theory: multilateral agreements reduce barriers globally, maximizing efficiency through specialization.
• Compare impacts: bilateral deals limit partners, potentially excluding optimal trade routes with others.
• Conclude preference: multilateral captures full gains from comparative advantage across all nations.

Why B is correct:

• In trade theory, multilateralism leverages comparative advantage with multiple partners, as defined by Ricardo's model, allowing countries to trade with the most efficient third parties for overall welfare gains.

Why the others are wrong:

• A: Trade diversion isn't always greater in bilateral trade; it depends on tariff levels, not inherently.
• C: Bilateral gains aren't necessarily less than harm to third countries; net effects vary by agreement design.
• D: Comparative advantage applies equally to bilateral trade; the issue is scope, not applicability.

Final answer: B