Figure 3-21
Uzbekistan's Production Possibilities Frontier
Azerbaijan's Production Possibilities Frontier
-Refer to Figure 3-21.If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails,then
A)neither Uzbekistan nor Azerbaijan will gain from this trade.
B)Uzbekistan will gain from this trade,but Azerbaijan will not.
C)Azerbaijan will gain from this trade,but Uzbekistan will not.
D)both Uzbekistan and Azerbaijan will gain from this trade.

Question

Figure 3-21
Uzbekistan's Production Possibilities Frontier
Azerbaijan's Production Possibilities Frontier  
-Refer to Figure 3-21.If Uzbekistan and Azerbaijan each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails,then
A)neither Uzbekistan nor Azerbaijan will gain from this trade. 
B)Uzbekistan will gain from this trade,but Azerbaijan will not. 
C)Azerbaijan will gain from this trade,but Uzbekistan will not. 
D)both Uzbekistan and Azerbaijan will gain from this trade.

Quizplus · Accepted Answer

Both Uzbekistan and Azerbaijan can benefit from trade by specializing in the good they have a comparative advantage in and trading with each other. From the production possibilities frontiers in the figure, we can see that Uzbekistan has a comparative advantage in producing bolts, while Azerbaijan has a comparative advantage in producing nails. With the given price of 12 bolts for 36 nails, Uzbekistan can produce 60 bolts and trade 48 bolts for 144 nails from Azerbaijan. Azerbaijan can produce 144 nails and trade 108 nails for 36 bolts from Uzbekistan. Both countries can consume more of both goods than if they tried to produce them all on their own. Therefore, both countries can gain from trade.

Figure 3-21 Uzbekistan's Production Possibilities Frontier