1. International Trade and Trade Policy
Chapter Seven:
International Trade and Trade Policy

2. Gains from Trade

3. Figure 7.1: Portugal’s Production-Possibilities Frontier
Portugal can produce 200 units of wine if it specializes in wine, or 100 units of cloth, if it specializes in cloth. Or it can produce any combination on the line between these two points. However it would like to consume a larger bundle—represented by point A.

4. Figure 7.2: England’s Production-Possibilities Frontier
England can produce 200 units of wine if it specializes in wine, or 400 units of cloth, if it specializes in cloth. Or it can produce any combination on the line between these two points. However it would like to consume a larger bundle—represented by point B.

5. Table 7.1: Production, Exchange, and Consumption of Wine and Cloth

6. Table 7.2: Opportunity Cost and Comparative Advantage

7. Drawbacks of Free Trade

8. Table 7.3: A Different Outcome of Exchange and Consumption

9. Appendix: A Formal Theory of Gains from Trade

10. Figure 7.3: Joint Production Possibilities Frontier for England and Portugal
By specializing efficiently, England and Portugal together can produce these combinations of wine and cloth.

11. Figure 7.4: Efficient and Inefficient Joint Production Possibilities Frontier
If England and Portugal specialized in an inefficient way, the joint production possibilities frontier would bow in rather than out.