You are the Minister of Trade for a small island country in the South Pacific with the following annual production possibilities curve: You are negotiating a deal with a neighboring island that has the following annual PPC: Refer to the figure above. As soon as you see the other island's PPC, you realize:

Question

You are the Minister of Trade for a small island country in the South Pacific with the following annual production possibilities curve:  You are negotiating a deal with a neighboring island that has the following annual PPC:  Refer to the figure above. As soon as you see the other island's PPC, you realize:

Quizplus · Accepted Answer

The other island has an absolute advantage in both fish and coconuts, meaning they can produce more of both products than your island can. However, this does not mean that there cannot still be gains from trade. Your island can specialize in producing coconuts, which it has a comparative advantage in, and trade with the neighboring island for fish. This will allow both islands to consume more of both products than if they attempted to produce everything themselves.

You Are the Minister of Trade for a Small Island