FIGURE 20-2 Comparative Advantage and the Production Possibility Frontier
imageThe U.S. opportunity cost of 1 million phones in terms of trucks is 1,000: for every 1 million phones, 1,000 trucks must be forgone. The Chinese opportunity cost of 1 million phones in terms of trucks is 250 for every additional 1 million phones, only 250 trucks must be forgone. As a result, the United States has a comparative advantage in truck production, and China has a comparative advantage in phone production. In autarky, each country is forced to consume only what it produces: 50,000 trucks and 50 million phones for the United States; 25,000 trucks and 100 million phones for China.