You are the Minister of Trade for a small island country with the following annual PPC: You are negotiating a trade agreement with a neighboring island with the following annual PPC: As soon as you see the other island's PPC, you realize there are:

Question

You are the Minister of Trade for a small island country with the following annual PPC:  You are negotiating a trade agreement with a neighboring island with the following annual PPC:  As soon as you see the other island's PPC, you realize there are:

Quizplus · Accepted Answer

Since the other island has a higher PPC for fish than coconuts, it can be inferred that they have a comparative advantage in fishing. On the other hand, your island has a comparative advantage in producing coconuts as it has a higher PPC for coconuts than for fish. Therefore, there are gains from trade as your island can specialize in producing coconuts and trade with the other island for fish. This will result in both islands being able to consume more coconuts and fish than if they had not traded.

You Are the Minister of Trade for a Small Island