By W. M. Scammell (auth.)
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Increase in potato output could therefore be carried to W with minimal effect but any increase in such output over W would require perhaps the whole population to take to the fields with immediate and calamitous effect on micro-circuit production. Whatever the production conditions which the production possibilities curve reflects, however, it is likely to be a variant on the basic theme of a curve concave to the origin. The example just given is not so far-fetched as at first appears. The 37 The Pure Theory of International Trade specific factor here is labour, and potato production cannot be increased beyond a certain point without drawing labour into potato production at enormous opportunity cost.
Such a difference in exchange ratios indicates that advantage may be reaped by both countries from trade in the two goods. The gains from trade may be illustrated graphically for the same example. Fig. 2 presents the production possibilities curves of the United States and Britain for the same two commodities and with the same marginal rates of transformation- that is, the same exchange ratios. Two adaptations of the previous figures have been made: (i) the curves are superimposed International Trade and Payments 32 on the same axes and with the same scale; and (ii) the exchange ratios of each have been adjusted so as to have a common value at the cloth axis end.
Over the sector R Y a similar situation prevails. Wheat workers can be taken away from the doth production at Y with resultant great increases in wheat International Trade and Payments 36 Wheat X 0 Y Cloth Fig. 4 production and little drop in cloth output. If the object is to increase cloth production wheat workers are being taken away from farming, with resultant sharp drops in wheat output, and put to work in cloth production, with not very impressive results. Only over the sector WR are wheat and cloth substitutable for one another without sharply increasing costs.