Demonstrate how the countries would benefit from specialising and trading.
Understand the Problem
The question is asking how two countries, Pacifica and Europa, would gain advantages by specializing in the production of certain goods (motor vehicles and television sets) and trading with each other. We need to analyze the given data to demonstrate the benefits of specialization and trade.
Answer
Specialize in comparative advantage; trade for mutual gains.
The countries benefit by specializing where they have a comparative advantage. Pacifica should produce motor vehicles, and Europa should produce television sets. By trading, both countries can obtain more goods than they could produce on their own.
Answer for screen readers
The countries benefit by specializing where they have a comparative advantage. Pacifica should produce motor vehicles, and Europa should produce television sets. By trading, both countries can obtain more goods than they could produce on their own.
More Information
Specialization according to comparative advantage allows countries to efficiently allocate resources, resulting in increased total production and variety for consumption.
Tips
A common mistake is confusing absolute advantage with comparative advantage. Ensure opportunity costs are correctly calculated.
Sources
- Comparative Advantage in International Trade - Investopedia - investopedia.com
- Lesson summary: Comparative advantage and gains from trade - khanacademy.org
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