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Should we celebrate this international exchange of goods and
services, or should it cause us concern? Politicians and the public
sometimes question the desirability of international trade, arguing
that the nation should produce goods for itself rather than buy them
from other countries. Industries around the world demand protec-
tion from foreign competition: Japanese farmers want to keep out
American rice, and American steelworkers want to keep out Euro-
pean steel. These demands are often supported by public opinion.
Steve Russell/Getty Images trade. Why? Because they view it in terms of comparative advan-
Economists, however, have a very positive view of international

tage. Figure 1.3-3 shows how international trade can be inter-
hypothetical, it is based on an actual pattern of international trade:
Canada has a comparative advantage in this jacket. preted in terms of comparative advantage. Although the example is
American exports of pork to Canada and Canadian exports of aircraft
to the United States. Panels (a) and (b) illustrate hypothetical production possibilities
curves for the United States and Canada, with pork measured on the horizontal axis
and aircraft measured on the vertical axis. The U.S. production possibilities curve is
flatter than the Canadian production possibilities curve, implying that producing one
more ton of pork costs fewer aircraft in the United States than it does in Canada. This
means that the United States has a comparative advantage in pork, and Canada has a
comparative advantage in aircraft.

FIGURE 1.3-3 Comparative Advantage and International Trade

(a) Production Possibilities Curves for the United States (b) Production Possibilities Curves for Canada
Quantity Quantity
of aircraft of aircraft Canadian production
3,000 with trade
U.S. consumption
without trade Canadian
U.S. consumption consumption
with trade without trade

1,500 1,500
1,400
U.S. Canadian
1,000 production consumption
with trade with trade
U.S. Canadian
PPC PPC
0 1 2 3 0 0.8 1 1.5
Quantity of pork (millions of tons) Quantity of pork (millions of tons)
In this hypothetical example, Canada and the United States in pork production. Panel (b) shows the Canadian production
produce only two goods: pork and aircraft. Aircraft are measured possibilities curve. It is relatively steep, implying that Canada
on the vertical axis and pork on the horizontal axis. Panel (a) has a comparative advantage in aircraft production. Just like
shows the U.S. production possibilities curve. It is relatively two individuals, both countries gain from specialization and
flat, implying that the United States has a comparative advantage trade.

Although the consumption points in Figure 1.3-3 are hypothetical, they illustrate a
general principle: as in the example of Alexis and Jacob, the United States and Canada
can both achieve mutual gains from trade. If the United States concentrates on pro-
ducing pork and sells some of its output to Canada, while Canada concentrates on
aircraft and sells some of its output to the United States, both countries can consume
more than if they insisted on being self-sufficient. For example, the United States

24 Macro • Unit 1 Basic Economic Concepts
Copyright © Bedford, Freeman & Worth Publishers.
Strictly for use with its products. For review purposes only. Not for redistribution.

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