Suppose there are only 2 Nations,A and B,and only two goods,x and y.If Nation A produces only x,it can make 20x per day.If Nation A produces only y,it can make 15y per day.If Nation B produces only x,it can make 15x per day.If Nation B produces only y,it can make 15y per day.After trade begins Nation ________ will specialize in the production of x and Nation ________ will specialize in the production of y.

Question

Quizplus · Accepted Answer

Nation A has a comparative advantage in producing good x as it can produce 20x per day whereas Nation B can only produce 15x per day. Similarly, Nation B has a comparative advantage in producing good y as it can produce 15y per day whereas Nation A can only produce 15y per day. Therefore, after trade begins, Nation A will specialize in the production of x and Nation B will specialize in the production of y. This will lead to higher efficiency and total production for both nations, resulting in mutual gains from trade.

Suppose There Are Only 2 Nations,A and B,and Only Two