... a capital intensive country and Pakistan a labour intensive country producing two goods, automobiles a capital intensive good, and cotton a labour intensive good. They use 50% of their resources to produce each good. Automobiles Bales of Cotton U.S 100 10 Pakistan 10 100 Total 110 110 Total production is 110 units of each commodity. Now suppose each country exclusively produces the good that it produces more efficiently. Automobiles Bales of Cotton U.S 200 0 Pakistan 0 200 Total 200 200 Specializing in more efficient areas has led to a gain of 90 units for each commodity. This is in a situation where each country had an absolute advantage, that is, each produced one good more efficiently than the other country. However, consider the following situation: Automobiles Bales of Cotton U.S 150 200 Pakistan 50 100 Total 200 300 Here, the U.S produces both goods more efficiently than Pakistan; however, the ratio in automobiles is 3:1 for the U.S and for ...

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