The gains from specialization and trade are discussed in terms of production gai
ID: 1131899 • Letter: T
Question
The gains from specialization and trade are discussed in terms of production gains and consumption gains.
Assume conditions of complete specialization. The following two tables show the production of autos and wheat for two countries, Iospain and Uskuburg, before and after they specialize in one of the goods, as well as consumption before and after the countries start trading.
Complete the following table by calculating production gains or losses from specialization and filling in the last two columns.
Before Specialization
After Specialization
Net Gain or Loss
Complete the following table by calculating consumption gains or losses from trade and filling in the last two columns.
Before Trade
After Trade
Net Gain or Loss
CountryBefore Specialization
After Specialization
Net Gain or Loss
Autos Wheat Autos Wheat Autos Wheat (Thousands) (Thousand tons) (Thousands) (Thousand tons) (Thousands) (Thousand tons) Iospain 60 70 130 0 Uskuburg 60 100 0 180 World 120 170 130 180Explanation / Answer
To calculate the production gain or loss from trade, we subtract the after trade production of autos and after trade production of wheat from their before trade counterparts for each country and the world. This provides the information as to how trade affects the production in the country. The minus sign before a number shows a loss.
Before Specialization
After Specialization
Net Gain or Loss
To calculate the consumption gain or loss from trade, we subtract the after trade consumption of autos and after trade consumption of wheat from their before trade counterparts for each country and the world. This provides the information as to how trade affects the consumption in the country.
Before Trade
After Trade
Net Gain or Loss
CountryBefore Specialization
After Specialization
Net Gain or Loss
Autos Wheat Autos Wheat Autos Wheat (Thousands) (Thousand tons) (Thousands) (Thousand tons) (Thousands) (Thousand tons) Iospain 60 70 130 0 Gain=130-60=70 Loss=0-70=-70 Uskuburg 60 100 0 180 Loss=0-60=-60 Gain=180-100=80 World 120 170 130 180 Gain=130-120=10 Gain=180-170=10Related Questions
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