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A-Level Economics · Comparative advantage and the gains from trade diagram question

Compare A with C. Why does specialising and trading beat self-sufficiency here?

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The diagram

The answer

The same 4 units of food, but 5 services instead of 3 — more of one good and no less of the other. A and C give the same food, but C gives two more services. Refuse to trade and you are stuck inside the trade line for no reason at all. Self-sufficiency means producing everything you consume, so you are stuck on the frontier at A: 4 food and 3 services. Specialise in services, trade at the world rate, and you reach C: the same 4 food and 5 services. Countries that insist on producing everything they consume are stuck inside the line — the same logic as a person who tries to grow their own food and build their own house instead of doing the job they are good at and buying the rest.

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This is one of 6 questions on the comparative advantage and the gains from trade diagram — every corner lettered, every wrong answer diagnosed.

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