Question

Look at Table 20.9. Is there a range of trades for

which there will be no gains?

Short answer

Yes, there is a range of trades for which there will be no gains.

Step-by-step solution

Step 1. Definition

Comparative advantage is defined as the capability of an economy to produce a good or service at a reduced opportunity cost as compared to its trading partners.

An opportunity cost is a possible or probable benefit that a person loses when he or she selects a specific option over another one.

Step 2. Explanation

country	current shoe production	current refrigerator production
US	5000	20000
Mexico	4000	5000
total	9000	25000

See Mexico has a comparative advantage in shoes while the USA has a comparative advantage in refrigerators.

So, if Mexico wants to be benefitted from trade, they have to export more than 4000 shoes and need to import more than 5000 refrigerators to counterbalance the reduction of 4000 or more shoes.

Similarly, if the USA wants to be benefitted from the trade they have to export more than 20000 refrigerators and need to import more than 5000 shoes to counterbalance the reduction of 20000 or more refrigerators.