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

The gains from specialization and trade are calculated by comparing the total production before and after specialization. Before specialization, Alpha and Beta together produce 50X (20X + 30X) and 50Y (30Y + 20Y). After specialization, Alpha produces 0X and 60Y, while Beta produces 60X and 0Y. The total production after specialization is 60X and 60Y, which is 10X and 10Y more than before specialization.

Assume That by Devoting All Its Resources to the Production