production-possibility frontier
456 19 • International Trade

Starting at point C, which shows Saudi oil production of 60, reduce Saudi oil domestic oil consumption by 20,

since 20 is exported to the United States and exchanged for 20 units of corn. This enables Saudi to reach point

D, where oil consumption is now 40 barrels and corn consumption has increased to 30 (see Figure 19.3).

Notice that even without 100% specialization, if the “trading price,” in this case 20 barrels of oil for 20 bushels

of corn, is greater than the country’s opportunity cost, the Saudis will gain from trade. Since the post-trade

consumption point D is beyond its production possibility frontier, Saudi Arabia has gained from trade.

LINK IT UP

Visit this website (http://wits.worldbank.org/trade-visualization.aspx) for trade-related data visualizations.

19.2 What Happens When a Country Has an Absolute Advantage in All Goods

LEARNING OBJECTIVES

By the end of this section, you will be able to:
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