Suppose the World Economy Is Composed of Just Two Countries

Multiple Choice

Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs below. Refer to the graphs and information above. Assume that prior to specialization and trade, Italy and Greece preferred points I and G on their respective production possibilities curves. As a result of complete specialization according to comparative advantage, the resulting gains in total output will be:

A) 5 steel and 15 chemicals
B) 10 chemicals
C) 15 steel and 5 chemicals
D) 25 steel