Question

Refer to the above data. Suppose that before specialization and trade Alpha chose production alternative C and Beta

chose production alternative B. After specialization and trade the gains will be:
A) 20 tons of fish.
C) 20 tons of fish and 20 tons of chips.
D) 240 tons of fish and 20 tons of chips.
B) 20 tons of chips.

Answer 1

The gains are: C)

20 tons of chips (Alpha's production of chips increased from 10 to 20 tons)

60 tons of fish (Beta's production of fish increased from 180 to 240 tons)

To determine the gains from specialization and trade, let's compare the production possibilities before and after specialization and trade.

Before Specialization and Trade:

Alpha's initial choice: C (40 tons of fish and 10 tons of chips)

Beta's initial choice: B (180 tons of fish and 10 tons of chips)

After Specialization and Trade:

Let's assume Alpha specializes in producing chips (good E), and Beta specializes in producing fish (good A).

Alpha trades some of its chips with Beta in exchange for fish.

The gains can be calculated by comparing the production after specialization and trade with the initial choices.

Alpha's Production After Trade:

Alpha specializes in chips (good E), so its production moves from 10 tons to 20 tons of chips (E).

Beta's Production After Trade:

Beta specializes in fish (good A), so its production moves from 180 tons to 240 tons of fish (A).

Therefore, the gains are:

20 tons of chips (Alpha's production of chips increased from 10 to 20 tons)

60 tons of fish (Beta's production of fish increased from 180 to 240 tons)