Reference no: EM133131144

In order to show that Germany has an absolute advantage in pharma and clothing production, what should be true about your two PPFs? The German PPF has to hit both axes at higher values than the Bangladesh PPF.

In order to show that Germany has a comparative advantage in pharma and Bangladesh in clothing, what has to be true on your two graphs? The slope of the German PPF, with clothing on the Y axis, must be flatter than the slope of the Bangladeshi PPF. That means that to make one more unit of clothing (in other words, to move up one in the Y dimension), Bangladeshis have to give up less pharmaceuticals than Germans do (in other words, they move less in the X dimension).

This is another reason why we started with Amy and Benny. It is easy to understand two people trading, and now we can apply that understanding to more complicated situations, like two countries trading.

Let's consider if everyone in Germany and in Bangladesh are happy to start trading. We have said that overall, the two countries are better off because they can get to points outside of their own PPF. But that does not mean every individual is better off.

Clothing producers in Germany now are competing against Bangladeshi producers. And the Bangladeshi producers are more efficient. Some German clothing producers will go out of business. That sucks for them. An insensitive analyst in the government might say, "Well, you should re-train for a job in pharmaceuticals." But maybe a worker feels they are too old to learn a new job. Or they live far from any pharma companies. Or they can't afford a training program that would prepare them for the new industry. These are all real things that economists are aware of and want to understand better.

Question - Repeat this analysis for those who loses out in Bangladesh when the countries start trading.