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The Principle of Comparative AdvantageThe table shows the production possibilities frontier for Gob ...

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The Principle of Comparative AdvantageThe table shows the production possibilities frontier for Gob ...

The Principle of Comparative Advantage

The table shows the production possibilities frontier for Gob and George-Michael.

Gob		George-Michael
Magic Tricks	Frozen Bananas		Magic Tricks	Frozen Bananas
740	0		320	0

555	85	240	205
370	170	160	410
185	255	80	615
0	340	0	820

Assume before trade, Gob produced and consumed 370 magic tricks and 170 frozen bananas and George-Michael produced and consumed 160 magic tricks and 410 frozen bananas.
Suppose Gob and George-Michael each specialize in making the good in which they have the comparative advantage and then trade. What are the overall gains from trade?

▸ 780 magic tricks, 240 frozen bananas

▸ 210 magic tricks, 1060 frozen bananas

▸ 210 magic tricks, 240 frozen bananas

▸ 240 magic tricks, 210 frozen bananas

Textbook

Macroeconomics

Edition: 3^rd

Authors: Acemoglu, Laibson, List

Read 66 times

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