By Mia Mikić (auth.)
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Additional resources for International Trade
The three interesting points on the world PPF are: point Ft where the world production of food is 70 since both countries produce only food; point Ct where both countries produce cloth resulting in the world production of 90 units; point R, resulting from each country specialising in the good with comparative advantage; and the world production of 60 units of food and 30 units of cloth (note that if each specialises in production in which it is disadvantaged, the production structure is 60 units of cloth and 10 units of food, at point r, which is clearly inferior to point R).
9. 9 F B F Incomplete specialisation The World PPF is given by ARB and the fact that Home is economically much larger is signified by the segment A·R being much longer than segment F1B (or A* A» FIR). When Foreign completely specialises in cloth in which it has a comparative advantage, it still cannot meet demand from the much larger Home. ). This situation is represented by a world production point such as P, where total supply of food OF comes from Home but total supply of cloth is combined from two sources: Foreign (OA·) and Home (A"A l ).
N) when the dimension is larger than 2. Suppose thus that now we have many countries but that all still produce only two goods, food and cloth. Production in autarky takes place under the same conditions as in the basic model. 7) stating that country 1 is relatively the most efficient producer of food, followed by country 2, and so on until country m comes last. In other words, countries are ranked in order of decreasing comparative advantage in the production of food. The necessary condition for a mutual incentive to trade is that at least two countries differ in terms of comparative costs.