beneficial exchange. Even when one country has an absolute advantage in all products, trade can still benefit

both sides. This is because gains from trade come from specializing in one’s comparative advantage.

Production Possibilities and Comparative Advantage

Consider the example of trade between the United States and Mexico described in Table 19.7. In this example,

it takes four U.S. workers to produce 1,000 pairs of shoes, but it takes five Mexican workers to do so. It takes

one U.S. worker to produce 1,000 refrigerators, but it takes four Mexican workers to do so. The United States

has an absolute advantage in productivity with regard to both shoes and refrigerators; that is, it takes fewer

workers in the United States than in Mexico to produce both a given number of shoes and a given number of

refrigerators.

Number of Workers needed to produce

Number of Workers needed to produce 1,000

1,000 units — Shoes

units — Refrigerators

Country

United

States

4 workers
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