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In a 2 country world, 1 is more efficient at producing 1 product and the other country is more efficient at producing another product. Explain why specialisation and trade usually benefit both countries.

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Introduction

´╗┐In a 2 country world, 1 is more efficient at producing 1 product and the other country is more efficient at When there are differing efficiencies between 2 countries producing 2 goods, there would be benefits gained from trade and specialisation. Specialisation is the process of a firm/country focusing her resources on producing the good that it has an advantage in; in this case, a country has an absolute advantage over the other in producing a good. ...read more.

Middle

Country A 100 100 Country B 60 200 World Output (before specialisation) 160 300 World Output (after specialisation) 100 x 2 = 200 200 x 2 = 400 From the table, it can be seen, with the same number of labourers (50 of them), country A is more efficient in producing guns and country B is more efficient in producing roses. ...read more.

Conclusion

For example, after specialisation, country A decides to exchange 60 guns for 100 roses, both countries will be better off. (in both countries, the new PPC curves shift out) Thus from the table and the 2 graphs, it can be seen that when there are differing efficiencies, through specialisation and trade, both countries will gain as they are able to consume at a point that is above their old PPC curves (without trade). ...read more.

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