The model shows that specialisation and trade can increase total output
When countries focus on producing what they make most efficiently and then trade with each other, the world ends up with more total output than if every country tried to produce everything itself.
Formula
Gains from trade = World output after specialisation − World output before specialisation
Real World
When South Korea specialised in semiconductor manufacturing and the US in software and services following trade liberalisation, combined output of both industries grew substantially — neither country could have matched this alone.
Exam Focus
In numerical questions, always construct a before-and-after output table to demonstrate the gain — this is what the mark scheme rewards.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
How well did you know this?