4. Specialization and trade

When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.

The following graphs show the production possibilities frontiers (PPFs) for Candonia and Desonia. Both countries produce potatoes and coffee, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of coffee, as indicated by the grey stars marked with the letter A.