Principles of Macroeconomics / Unit 17 MAC 1606 worked example, 60 to 90 seconds
Gains from Specialisation
The idea
Show that moving each country toward its comparative advantage raises world output of both goods. Compute world totals before trade from each country's own production, then recompute after each specialises, and compare the two pairs of totals.
In practice
Each country has 100 workers. Before trade, Northland puts 30 workers on cloth and 70 on grain, producing 300 cloth and 1,400 grain. Southland splits evenly, producing 400 cloth and 400 grain. World output is 700 cloth and 1,800 grain. Now each specialises: Northland puts all 100 workers on grain, producing 2,000 grain and no cloth, and Southland puts all 100 on cloth, producing 800 cloth. World output is 800 cloth and 2,000 grain. Both totals rose, from the same workers and the same skills.
Where people slip
Nothing was invented and nobody worked harder. The extra 100 cloth and 200 grain came only from each country doing what it gives up least to do. That is the gain from trade, and it is why restricting trade pushes the world back inside its frontier rather than redistributing along it.
Your place on the trail
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