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for one truck. (How the specific terms of trade are actually determined is
not important for this discussion. It is enough to know that the final terms
of trade will lie somewhere between Seaside’s and Roadway’s opportunity
costs for boat and truck production.) Roadway’s truck producers will now
get one boat per truck—a far better exchange than was available to them
before trade.
Roadway’s manufacturers will move to produce more trucks and fewer
boats until they reach the point on their production possibilities curve at
which the terms of trade equals the opportunity cost of producing trucks.
That occurs at point B in Panel (a) of Figure 17.5 "International Trade
Induces Greater Specialization"; Roadway now produces 7,000 trucks and
7,000 boats per year.
Figure 17.5 International Trade Induces Greater Specialization

Before trade, Roadway is producing at point A in Panel (a) and
Seaside is producing at point A′ in Panel (b). The terms of trade are
one, meaning that one boat exchanges for one truck. Roadside moves
along its production possibilities curve to point B, at which the curve
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org

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