Table32-3 The Gains from Specialization
all goods. In Table 32-2 , Canada has a comparative advantage in the
production of wheat because Canada must give up less cloth to produce
one kilogram of wheat than must be given up in the EU. Similarly, the EU
has a comparative advantage in the production of cloth because the EU
must give up less wheat in order to produce one metre of cloth than must
be given up in Canada.
The gains from specialization and trade depend on the pattern of comparative, not absolute,
advantage.In our example, total world wheat production can be increased if Canada
devotes more resources to the production of wheat and fewer resources
to the production of cloth. Similarly, total world cloth production can be
increased if the EU devotes more resources to the production of cloth and
fewer to wheat. In the extreme case, Canada could specialize by producing
only wheat and the EU could specialize by producing only cloth. Such
reallocations of resources increase total world output because each
country is producing more of the good in which it has the lowest
opportunity cost. The gains from specialization along the lines of
comparative advantage are shown in Table 32-3. In the table, we
assume that Canada shifts its resources to produce slightly more wheat
and slightly less cloth, while the EU does the opposite. Note that total
world output of both goods increases.