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I've recently been reading Mankiw's Microeconomics 8th edition. In there he raises the idea of comparative advantage and points out how if we have two participants in an economy who both produce apples and oranges, with participant being more efficient at producing apples and oranges that trade still makes sense, because whilst one participant holds an absolute advantage, a comparative advantage can arise from the participants specialising in the production of what they are best at.

This is fine and makes perfect sense (although Mankiw explains it better than I have here). The trouble I have been having is trying to understand this when thinking about a more complex economy than a toy one composed of only two participants. In the simplest terms, if we were to duplicate the two participant economy to effectively create two two participant economies - like two countries both of which has apple producers and orange producers. Does the theory of comparative advantage hold in this case where the producers in an economy are not producing products unique to a single economy and are both still producing the same products? As I'm trying to think about it, it seems to me that what would happen in this case would be one of the producers of apples would 'win' and on of the producers of oranges would win because they hold the greatest comparative advantage, therefore the two remaining producers would cease to produce. An implication of this I think is that in the long-run all capitalist economies would approach a state of only containing monopolies? Is this reasonable?

I've had a look on here and there seems to be some similar and related questions, but nothing that directly asks the same question:

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  • $\begingroup$ Your intuition is correct as illustrated in here academic.csuohio.edu/kosteas_b/Lecture%20Presentations/… $\endgroup$ – user2838619 Jan 2 at 21:09
  • $\begingroup$ You might be right. However, in a concrete situation there might be limits. For example as specialization increases at some point prices will have shifted so increasing specialization stops at a new more specialized equilibrium. Suppose one country specializes in food production and another in machine production. At some point agricultural land prices will be low enough in the country of the machine specialist that the mix stops changing. Or the food specialist finds that people still want to make machines and on average better workers are available for lower wages than previously. $\endgroup$ – H2ONaCl Jan 4 at 0:04

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