Question

Assume that before specialization and trade, Latalia produced combination C and Trombonia produced combination B. If these two nations now specialize completely based on comparative advantage, the total gains from specialization and trade will be

Answer 1

the gains resulting from trade:

• 8 porks - (2 + 6) = 0
• 20 beans - (10 + 6) = 4 beans

Step-by-step explanation:

Latalia's production A. B. C. D. E.

pork 4 3 2 1 0

beans 0 5 10 15 20

Trombonia's production A. B. C. D. E.

pork 8 6 4 2 0

beans 0 6 12 18 24

Latalia's opportunity cost of producing pork at C = 10 / 2 = 5 beans

Latalia's opportunity cost of producing beans at C = 2 / 10 = 0.2 pork

Trombonia's opportunity cost of producing pork at B = 6 / 6 = 1 bean

Trombonia's opportunity cost of producing beans at B = 6 / 6 = 1 pork

Latalia should specialize in the production of beans while Trombonia should specialize in the production of pork.

Total production will be 8 porks and 20 beans.

the gains resulting from trade:

• 8 porks - (2 + 6) = 0
• 20 beans - (10 + 6) = 4 beans