In the chapter, you saw how to create a production possibilities frontier for the United States and Mexico. Let’s take a look at how to combine these PPFs to make one PPF for the U.S.–Mexico trade alliance. You’ll use the same set of axes that was used in the chapter: computers on the vertical axis and shirts on the horizontal axis. 

a. First, you need to plot the endpoints of the PPF by figuring out the maximum numbers of computers and shirts. If both the United States and Mexico produced only computers, how many would they produce? What if they only produced shirts? Plot these two points and label them as A (all computers) and Z (all shirts). The PPF for the U.S.–Mexico trade alliance is going to look a little different from the PPFs for the individual countries, so we don’t want to simply connect the two points with a straight line. We need to figure out the rate at which the U.S.–Mexico trade alliance gives up computers to get shirts (or vice versa). 

b. Starting at point A, if citizens of the United States or Mexico decided they wanted more shirts, where would those shirts be produced? Why? What do you think the PPF should look like as the U.S.–Mexico trade alliance initially moves away from point A? 

c. Starting at point Z, if citizens of the United States or Mexico decided they wanted more computers, where would those computers be produced? Why? What do you think the PPF should look like as the U.S.–Mexico trade alliance initially moves away from point Z? 

d. Plot the point at which each country is completely specializing in the good for which it has the comparative advantage. Label this point B. Connect points A, B, and Z. This is the PPF for the U.S.–Mexico trade alliance. Can you describe how this PPF is a combination of the two nations’ separate PPFs? 

e. Suppose now that a third nation, Haiti, enters the trade alliance. In Haiti, the opportunity cost of a computer is 12 shirts, and Haiti has the labor necessary to produce 1 computer (or 12 shirts). Can you draw a new PPF for the U.S.–Mexico–Haiti trade alliance? 

f. Okay, what will happen to the PPF as more and more countries join the trade alliance? What would it look like with an infinite number of countries?