Consider the following information about the production of two goods,X and Y,in two countries,A and B: • In Country A it takes X_a units of resources to produce one unit of X and Y_a units of resources
To produce one unit of Y.
• In Country B it takes X_b units of resources to produce one unit of X and Y_b units of resources
To produce one unit of Y.
• Assume the amount of resources used to produce the goods in the two countries can be
Compared unambiguously.
TABLE 32-1
Refer to Table 32-1.There is no scope for gains from trade due to specialization between the two countries if

Question

Quizplus · Accepted Answer

To determine whether there are gains from trade due to specialization, we need to compare the opportunity costs of producing each good in each country. The opportunity cost of X in Country A is (Y_a / X_a) units of Y, while the opportunity cost of X in Country B is (Y_b / X_b) units of Y. If these opportunity costs differ between the two countries, there are gains from trade due to specialization. However, the question asks when there is no scope for gains from trade due to specialization, which means the opportunity costs of producing X in each country are the same. Therefore, we are looking for when (X_a / Y_a) = (X_b / Y_b) This is given as option C. Therefore, there are no gains from trade due to specialization when the ratio of resources needed to produce X to those needed to produce Y is the same in both countries.

Consider the Following Information About the Production of Two Goods,X