The gains from specialization and trade are based not on absolute advantage but on comparative advantage. When each person specializes in producing the good for which he or she has a comparative advantage, total production in the economy rises. This increase in the size of the economic pic can be used to make everyone better off. In our example, the farmer spends more time growing potatoes, and the rancher spends more time producing meat. As a result, the total production of potatoes rises from 40 to 44 ounce and the total production of meat rises from 16 to 18 ounce. The farmer and rancher share the benefits of this increased production. There is another way to look at the gains from trade in terms of the price that each party pays the other. Because the farmer and rancher have different opportunity costs, they can each think they are getting a bargain. That is each benefits from trade by obtaining a good at a price that ie lower than his or her opportunit...