Cambridge International as and a level Economics Ebook

Trading possibility curve
A 
trading possibility curve
shows how an economy can 
benefi t from specialising and trading. For example, a country 
may be able to produce a maximum of 50 million units of 
clothing or 100 million units of food. For every 1 unit of 
clothing it produces it gives up the opportunity to produce 
2 units of food. Engaging in international trade may enable 
the country to specialise in clothing production and import 
three units of food for every unit of clothing it exports.
Trading possibility curve: 
a diagram showing the eff ects 
of a country specialising and trading.
KEY TERM
In this case, trading will increase the total quantity of 
products the country can consume. If the country had 
initially produced 40 million units of clothing, the maximum 
output of food it could produce would be 20 million units. 
If, however, it engages in international trade, it can specialise 
in clothing production making 50 million units of clothing. 
It can export 10 million units of clothing in exchange for 
Figure 4.22 
Trading possibility curve diagram
30
100
150
Food (millions of units)
20
A
B
y
x
z
0
40 50
Clothing (millions of units)
xy
= exports of 10 million
units of clothing
yz
= imports of 30 million
units of food
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Chapter 4: The macroeconomy 
30 million units of imported food, enabling it to move from 
point A to point B and enjoy more products.
Trade blocs
Th
ere are a number of 
trade blocs
, regional groupings of 
countries that have preferential trade agreements between 
member countries.