Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units
of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable ﬁgures for nation Beta
are 60X and 40Y. If Alpha had produced 20X and 30Y and Beta had produced 30X and 20Y before
specialization and trade, then we can say that the gains from specialization and trade are 10X and
10Y.

Question

Quizplus · Accepted Answer

Before specialization and trade, Alpha had a trade-off of producing either 20X or 30Y while Beta had a trade-off of producing either 30X or 20Y. However, after specialization and trade, Alpha can devote all its resources to producing X and trade with Beta, which can devote all its resources to producing Y. Thus, Alpha can produce 40X and trade 20X with Beta for 20Y, while Beta can produce 40Y and trade 20Y with Alpha for 20X. As a result, Alpha gains 20Y-30Y = -10Y and 40X-20X = 20X, and Beta gains 20X-30X = -10X and 40Y-20Y = 20Y. Therefore, the gains from specialization and trade are 10X and 10Y.

Assume That by Devoting All Its Resources to the Production