Maldonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Maldonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total ofmillionpounds of coffee andmillionpounds of grain.

Suppose that Maldonia and Sylvania agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 12 million pounds of grain for 12 million pounds of coffee. This ratio of goods is known as theterms of tradebetween Maldonia and Sylvania.

The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A.