Question

When Kim and Liam move from spending 30 minutes of each hour producing pies and 30 minutes producing cakes to specializing in the good in which they have a comparative​ advantage, the total gains from trade are​ ______ pies and​ ______ cakes.

A.​30; 100
B.​100; 400
C.​100; 30
D.​40; 200

Answer 1

A) 30 pies and 100 cakes.

Step-by-step explanation:

Kim can produce 40 pies or 400 cakes an hour. Liam can produce 100 pies or 200 cakes an hour.

Since each one will specialize in the production of the good in which they have a comparative advantage, Kim will produce cakes and Liam will produce pies.

before specialization Kim produced 20 pies and 200 cakes, while Liam produced 50 pies and 100 cakes.

So the total gains from trade are:

• 50 pies - 20 pies = 30 pies
• 200 cakes - 100 cakes = 100 cakes