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Specialization and the Gains from Trade

2 March, 2015 - 12:11

We have so far assumed that no trade occurs between Roadway and Seaside. Now let us assume that trade opens up. The fact that the opportunity costs differ between the two countries suggests the possibility for mutually advantageous trade. The opportunities created by trade will induce a greater degree of specialization in both countries, specialization that reflects comparative advantage.