Exhibit 34-9
Refer to Exhibit 34-9. In the no specialization-no trade case, suppose country X produces and consumes 100 units of good A and 20 units of good B. Country Y produces and consumes 20 units of good A and 60 units of good B. If the two countries specialize and trade, and the actual amounts traded are 125 units of good A for 25 units of good B, how many more units of good B will country Y consume by specializing and trading?

Question

Exhibit 34-9 
Refer to Exhibit 34-9. In the no specialization-no trade case, suppose country X produces and consumes 100 units of good A and 20 units of good B. Country Y produces and consumes 20 units of good A and 60 units of good B. If the two countries specialize and trade, and the actual amounts traded are 125 units of good A for 25 units of good B, how many more units of good B will country Y consume by specializing and trading?

Quizplus · Accepted Answer

Before specialization and trade, country Y produces and consumes 60 units of good B. After specializing and trade, country Y trades away 25 units of good B and receives 125 units of good A in exchange. This means country Y would consume 125/5 = 25 more units of good B than before (since they traded away 5 units of B in exchange for 1 unit of A). Therefore, country Y would consume a total of 60+25=85 units of good B. The increase in consumption is 85-60 = 25 units.

Exhibit 34-9 Refer to Exhibit 34-9. in the No Specialization-No Trade Case