I'm confused on how to calculate the gains from trade. I don't know what to do. The accompanying tables give production possibilities data for Gamma and Sigma. Alldata are in tons.Gamma's production possibilitiesACDETea120906030Pots306090120Sigma's production possibilitiesACDETea40302010Pots306090120Assume that before specialization and trade, Gamma and Sigma both chose productionpossibility "C." Now if each specializes according to comparative advantage, the gainsfrom specialization and trade will beA) 40 tons of pots.C) 20 tons of tea and 20 tons of pots.B) 40 tons of tea.D) 20 tons of tea.

If both specialise gains from trade would be 60-20=40 tons of tea.

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I'm confused on how to calculate the gains from trade. I don't know what to do.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I'm confused on how to calculate the gains from trade. I don't know what to do.

The accompanying tables give production possibilities data for Gamma and Sigma. All
data are in tons.
Gamma's production possibilities
A
C
D
E
Tea
120
90
60
30
Pots
30
60
90
120
Sigma's production possibilities
A
C
D
E
Tea
40
30
20
10
Pots
30
60
90
120
Assume that before specialization and trade, Gamma and Sigma both chose production
possibility "C." Now if each specializes according to comparative advantage, the gains
from specialization and trade will be
A) 40 tons of pots.
C) 20 tons of tea and 20 tons of pots.
B) 40 tons of tea.
D) 20 tons of tea.

Definition Definition Any of the various net benefits or net gains that a country or trader makes by participating in international trade.

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