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Production before trade
Country Oil Production (barrels) Corn Production (bushels)
Saudi Arabia (C) 60 10
United States (C') 20 60
Total World Production 80 70

The slope of the production possibility frontier illustrates the opportunity cost of producing oil in terms of corn. Using all its resources, the United States can produce 50 barrels of oil or 100 bushels of corn. So the opportunity cost of one barrel of oil is two bushels of corn—or the slope is 1/2. Thus, in the U.S. production possibility frontier graph, every increase in oil production of one barrel implies a decrease of two bushels of corn. Saudi Arabia can produce 100 barrels of oil or 25 bushels of corn. The opportunity cost of producing one barrel of oil is the loss of 1/4 of a bushel of corn that Saudi workers could otherwise have produced. In terms of corn, notice that Saudi Arabia gives up the least to produce a barrel of oil. These calculations are summarized in [link] .

Opportunity cost and comparative advantage
Country Opportunity cost of one unit — Oil (in terms of corn) Opportunity cost of one unit — Corn (in terms of oil)
Saudi Arabia ¼ 4
United States 2 ½

Again recall that comparative advantage was defined as the opportunity cost of producing goods. Since Saudi Arabia gives up the least to produce a barrel of oil, ( 1 4  <  2 in [link] ) it has a comparative advantage in oil production. The United States gives up the least to produce a bushel of corn, so it has a comparative advantage in corn production.

In this example, there is symmetry between absolute and comparative advantage. Saudi Arabia needs fewer worker hours to produce oil (absolute advantage, see [link] ), and also gives up the least in terms of other goods to produce oil (comparative advantage, see [link] ). Such symmetry is not always the case, as we will show after we have discussed gains from trade fully. But first, read the following Clear It Up feature to make sure you understand why the PPF line in the graphs is straight.

Can a production possibility frontier be straight?

When you first met the production possibility frontier (PPF) in the chapter on Choice in a World of Scarcity it was drawn with an outward-bending shape. This shape illustrated that as inputs were transferred from producing one good to another—like from education to health services—there were increasing opportunity costs. In the examples in this chapter, the PPFs are drawn as straight lines, which means that opportunity costs are constant. When a marginal unit of labor is transferred away from growing corn and toward producing oil, the decline in the quantity of corn and the increase in the quantity of oil is always the same. In reality this is possible only if the contribution of additional workers to output did not change as the scale of production changed. The linear production possibilities frontier is a less realistic model, but a straight line simplifies calculations. It also illustrates economic themes like absolute and comparative advantage just as clearly.

Gains from trade

Consider the trading positions of the United States and Saudi Arabia after they have specialized and traded. Before trade, Saudi Arabia produces/consumes 60 barrels of oil and 10 bushels of corn. The United States produces/consumes 20 barrels of oil and 60 bushels of corn. Given their current production levels, if the United States can trade an amount of corn fewer than 60 bushels and receives in exchange an amount of oil greater than 20 barrels, it will gain from trade    . With trade, the United States can consume more of both goods than it did without specialization    and trade. (Recall that the chapter Welcome to Economics! defined specialization as it applies to workers and firms. Specialization is also used to describe the occurrence when a country shifts resources to focus on producing a good that offers comparative advantage.) Similarly, if Saudi Arabia can trade an amount of oil less than 60 barrels and receive in exchange an amount of corn greater than 10 bushels, it will have more of both goods than it did before specialization and trade. [link] illustrates the range of trades that would benefit both sides.

Questions & Answers

how does Neisseria cause meningitis
Nyibol Reply
what is microbiologist
Muhammad Reply
what is errata
Muhammad
is the branch of biology that deals with the study of microorganisms.
Ntefuni Reply
What is microbiology
Mercy Reply
studies of microbes
Louisiaste
when we takee the specimen which lumbar,spin,
Ziyad Reply
How bacteria create energy to survive?
Muhamad Reply
Bacteria doesn't produce energy they are dependent upon their substrate in case of lack of nutrients they are able to make spores which helps them to sustain in harsh environments
_Adnan
But not all bacteria make spores, l mean Eukaryotic cells have Mitochondria which acts as powerhouse for them, since bacteria don't have it, what is the substitution for it?
Muhamad
they make spores
Louisiaste
what is sporadic nd endemic, epidemic
Aminu Reply
the significance of food webs for disease transmission
Abreham
food webs brings about an infection as an individual depends on number of diseased foods or carriers dully.
Mark
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Esinniobiwa Reply
Assimilatory nitrate reduction is a process that occurs in some microorganisms, such as bacteria and archaea, in which nitrate (NO3-) is reduced to nitrite (NO2-), and then further reduced to ammonia (NH3).
Elkana
This process is called assimilatory nitrate reduction because the nitrogen that is produced is incorporated in the cells of microorganisms where it can be used in the synthesis of amino acids and other nitrogen products
Elkana
Examples of thermophilic organisms
Shu Reply
Give Examples of thermophilic organisms
Shu
advantages of normal Flora to the host
Micheal Reply
Prevent foreign microbes to the host
Abubakar
they provide healthier benefits to their hosts
ayesha
They are friends to host only when Host immune system is strong and become enemies when the host immune system is weakened . very bad relationship!
Mark
what is cell
faisal Reply
cell is the smallest unit of life
Fauziya
cell is the smallest unit of life
Akanni
ok
Innocent
cell is the structural and functional unit of life
Hasan
is the fundamental units of Life
Musa
what are emergency diseases
Micheal Reply
There are nothing like emergency disease but there are some common medical emergency which can occur simultaneously like Bleeding,heart attack,Breathing difficulties,severe pain heart stock.Hope you will get my point .Have a nice day ❣️
_Adnan
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Innocent
I think infection prevention and control is the avoidance of all things we do that gives out break of infections and promotion of health practices that promote life
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_Adnan
en français
Adama
which site have a normal flora
ESTHER Reply
Many sites of the body have it Skin Nasal cavity Oral cavity Gastro intestinal tract
Safaa
skin
Asiina
skin,Oral,Nasal,GIt
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all
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by fussion
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Micheal
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Shelly Reply
part of a tissue or an organ being wounded or bruised.
Wilfred
what term is used to name and classify microorganisms?
Micheal Reply
Binomial nomenclature
adeolu
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Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
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