Authors libby rittenberg 892

of consumers in the two countries. In turn, consumers have responded to
the prices charged by sellers of boats and trucks.
The two countries differ in their respective abilities to produce trucks and
boats. As we can see by looking at the intersection of the production
possibilities curves with the vertical axes in Figure 17.3 "Comparative
Advantage in Roadway and Seaside", Roadway is able to produce more
trucks than Seaside. If Roadway concentrated all of its resources on the
production of trucks, it could produce 10,000 trucks per year. Seaside
could produce only 5,000. Now look at the intersection of the production
possibilities curves with the horizontal axes. If Roadway concentrated all
of its resources on the production of boats, it could produce 10,000 boats.
Seaside could produce only 7,000 boats. Because Roadway is capable of
producing more of both goods, we can infer that it has more resources or is
able to use its labor and capital resources more productively than Seaside.
When an economy or individual can produce more of any good per unit of
labor than another country or individual, that country or person is said to
have an absolute advantage.
Despite the fact that Roadway can produce more of both goods, it can still
gain from trade with Seaside—and Seaside can gain from trade with
Roadway. The key lies in the opportunity costs of the two goods in the two
countries. The country with a lower opportunity cost for a particular good
or service has a comparative advantage in producing it and will export it to
the other country.
We can determine opportunity costs in the two countries by comparing the
slopes of their respective production possibilities curves at the points
where they are producing. At point A in Panel (a) of Figure 17.3
Attributed to Libby Rittenberg and Timothy Tregarthen
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