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benefit every individual, however. Most people benefit from free trade, but
some are hurt. We will then look at the phenomenon of two-way trade, in
which countries both import and export the same goods. The last part of
the chapter examines the effects of trade restrictions and evaluates the
arguments made for such restrictions. Economists tend to be skeptical of
their validity.

17.1 The Gains from Trade
LEARNING OBJECTIVES
1. Differentiate between an absolute advantage in producing some good
and a comparative advantage.
2. Explain and illustrate the conditions under which two countries can
mutually benefit from trading with each other.
3. Explain and illustrate how the terms of trade determine the extent to
which each country specializes.
4. Explain and illustrate the mutual benefits of trade.
To model the effects of trade, we begin by looking at a hypothetical
country that does not engage in trade and then see how its production and
consumption change when it does engage in trade.

Production and Consumption Without
International Trade
Suppose the hypothetical country of Roadway is completely isolated from
the rest of the world. It neither exports nor imports goods and services. We

Attributed to Libby Rittenberg and Timothy Tregarthen
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