The following are hypothetical production possibilities tables

| November 24, 2016

The following are hypothetical production possibilities tables for New Zealand and Spain. All data are in millions of Bushels. New Zealand’s production possibilities table: A B C D E F Apples 0 10 20 30 40 50 Plums 25 20 15 10 5 0 Spain’s production possibilities table: A B C Apples 0 5 10 Plums 20 10 0 (a) Which nation has a comparative advantage in producing Apples? In producing Plums? (b) Assume that prior to specialization and trade, New Zealand chose production possibility E and Spain chose production possibility B. Now each specializes according to comparative advantage. What will be the resulting gains from trade? Explain your answer.

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