Comparative Advantage
Explore: How can Pakistan and Belgium can each consume more goods by specializing and trading?

This interactive graph highlights the fact that countries can increase consumption possibilities by specializing in the production of goods and services for which they have a comparative advantage and trading. In this example, two countries, Pakistan and Belgium produce textiles and chocolate.

1. According to the graph, what is the opportunity cost of textiles for Pakistan? For Belgium? Which country has a comparative advantage in textiles?
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2. What is the opportunity cost of chocolate for Pakistan? For Belgium? Which country has a comparative advantage in the production of chocolate? Why?
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3. Initially, each country spends half of its labor resources producing chocolate and half of it labor resources producing textiles. What happens to total production of textiles and chocolate if each economy devotes its labor resources exclusively to the product for which it has a comparative advantage in? To see the effects of this reallocation of labor resources, change the percent of labor devoted to textiles for Pakistan and Belgium (the percent of labor devoted to chocolate will change automatically) and see what happens to New Production. What happens to overall production for these countries?
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4. How is the combined production possibilities curve derived?
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5. Suppose the total production by both Pakistan and Belgium is split equally between the two countries. What is the combination of textiles and chocolate each is able to consume when each specializes in that good for which it has a comparative advantage? How does this compare to their consumption possibilities if each country produces just for itself? What does this comparison suggest for a country's willingness to participate in international trade along the lines of comparative advantage?
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