Comparative Advantage and the Gains from Trade · seed 1 · A4, ink-friendly. The answer key prints on its own page for grown-ups.

Why even the best still gains by trading

Civics & Economics · Economics · ages 15-16
Name ______________________   Date ____________

  1. In Alvia, one worker makes 10 wheat or 5 cloth. Type the wheat cost of 1 cloth.

    Answer: ______________

  2. What is the difference between absolute and comparative advantage?

    • Absolute is making more; comparative is giving up less to make it
    • They mean the same thing
    • Comparative means making nothing

  3. In Betta, one worker makes 4 wheat or 4 cloth. What is the wheat cost of 1 cloth?

    • 4 wheat
    • 2 wheat
    • 1 wheat

  4. What are the gains from trade?

    • Less of every good everywhere
    • More of both goods on both sides than either could make alone
    • Free money from nowhere

  5. Which country should specialise in cloth, and why?

    • Alvia, since it makes more wheat
    • Betta, since its opportunity cost of 1 against 2 is lower
    • Neither, since Alvia is better at both

  6. One country makes both wheat and cloth more cheaply. Why trade anyway?

    • Because being best at all goods still leaves a comparative disadvantage somewhere
    • Because trade needs equal partners
    • Because wheat tastes better abroad

  7. A tariff blocks cloth imports to protect Alvia's cloth makers. What is the wider cost?

    • Alvia loses the extra output specialisation would have created
    • Nobody loses anything ever
    • Betta gains extra wheat for free

  8. The agreed swap rate for traded goods can sit anywhere and both sides still gain.

    Circle one:   True   False

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Answer key

For grown-ups. Fold this page away before handing over the rest.

Why even the best still gains by trading W1-mt_gcGxu7E2Y8-s1

  1. 2 · Divide 10 by 5: each cloth sacrifices 2 wheat.
  2. Absolute is making more; comparative is giving up less to make it · Raw output beside sacrifice: only the second guides trade.
  3. 1 wheat · Divide 4 by 4: each cloth sacrifices 1 wheat.
  4. More of both goods on both sides than either could make alone · Specialisation creates an extra pile nobody gifted.
  5. Betta, since its opportunity cost of 1 against 2 is lower · The smaller sacrifice wins the specialisation, not raw output.
  6. Because being best at all goods still leaves a comparative disadvantage somewhere · Its weakest best skill is still worth buying from abroad.
  7. Alvia loses the extra output specialisation would have created · Protection redistributes at a cost: the shared pile shrinks.
  8. False · It must sit between the two opportunity costs for both to gain.
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