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.

        Assume 2 countries have the same amount of labour: 100 workers. The table below represents the output of 2 different goods they produce.

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. Assuming both countries A and B decide to specialise and devote all their labourers to produce the good they are efficient in producing, the world output will actually increase from 160 -200 for guns and 300 – 400 for roses.

        Thus because of an increase in world output, this implies that through trading (exchange of goods and services), both countries will actually benefit as they can consume at a point above what they can achieve without trade. 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).