Answer to Question #282584 in Economics for Hafsa

Question

What is meant by complete specialization? by incomplete specialization? Why do both nations gain from trade in the first instance but only the small nation in the second?

Answer 1

The reason for incomplete specialization under increasing costs is that as eachnation specializes in the production of the commodity of its comparativeadvantage, the relative commodity price in each nation moves toward each other(i.e., become less unequal) until they are identical in both nations.

Under constant costs, each nation specializes completely in production of thecommodity of its comparative advantage (i.e., produces only that commodity).The reason is that since it pays for the nation to obtain some of the commodity ofits comparative disadvantage from the other nation, then it pays for the nation toget all of the commodity of its comparative disadvantage from the other nation(i.e., to specialize completely in the production of the commodity of itscomparative advantage).