1. Trade in a One-Factor World
The Gains from Trade
If countries specialize according to their comparative advantage, they all gain from this specialization and trade.
We will demonstrate these gains from trade in two ways.
First, we can think of trade as an indirect method of production.
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2. Trade in a One-Factor World
Home L
aLW .
direct production (QWD) :
PC PW . L
aLC
indirect production (QWI) : 
aLC
aLW
<
PC PW L
aLC
Relative price ofter trade:
< L
aLW
aLC
PC PW
<
QWD
QWI .
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3. Trade in a One-Factor World
Foreign L*
aLC* .
direct production (Q*CD) : PW PC . L*
aLW*
indirect production (Q*CI) : 
Relative price ofter trade:
PC PW
<
aLC*
aLw * PW PC
>
aLW*
aLC * L*
aLW* L*
aLW* PW PC
>
aLC*
Q*CI
>
Q*CD .
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4. Trade in a One-Factor World
Another way to see the gains from trade is to consider how trade affects the consumption in each of the two countries.
The consumption possibility frontier states the maximum amount of consumption of a good a country can obtain for any given amount of the other commodity.
In the absence of trade, the consumption possibility curve is the same as the production possibility curve.
Trade enlarges the consumption possibility for each of the two countries.
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5. Figure 2-4: Trade Expands Consumption Possibilities
Trade in a One-Factor World
Figure 2-4: Trade Expands Consumption Possibilities
Quantity
of cheese, QC
of wine, QW
Quantity
of wine, Q*W
of cheese, Q*C 證明
L PC
aLC PW T P* F* L*
aLC*
aLW*
aLW * PC PW PC PW F P L
aLW
aLC T*
L*  PW
aLW* PC
(a) Home
(b) Foreign
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