International Business

Advantages of multilateral trade

International Business
Production possibilities for two countries

Kilos of w heat M etres of cloth

Less developed country Either 2 or 1

Developed country Either 4 or 8

International Business
 Pre-trade production and consumption possibilities
L e s s d e v e lo p e d c o u n tr y D e v e lo p e d c o u n tr y
W heat C lo th W heat C lo th
( k ilo s m ) (m e tre s m ) ( k ilo s m ) (m e tre s m )
a 1000 0 g 1200 0
b 800 100 h 1000 400
c 600 200 I 800 800
d 400 300 j 600 1200
e 200 400 k 400 1600
f 0 500 l 200 2000
m 0 2400

1000 a
Less developed
800 country
Wheat (kilos m)

600

400

200

0
0 200 400 600 800 1000
Cloth (metres m)
 Pre-trade production and consumption possibilities
L e s s d e v e lo p e d c o u n tr y D e v e lo p e d c o u n tr y
W heat C lo th W heat C lo th
( k ilo s m ) (m e tre s m ) ( k ilo s m ) (m e tre s m )
a 1000 0 g 1200 0
b 800 100 h 1000 400
c 600 200 I 800 800
d 400 300 j 600 1200
e 200 400 k 400 1600
f 0 500 l 200 2000
m 0 2400

1000 a

b Less developed
800 country
Wheat (kilos m)

600
c

400 d

200 e

f
0
0 200 400 600 800 1000
Cloth (metres m)
 Pre-trade production and consumption possibilities
L e s s d e v e lo p e d c o u n tr y D e v e lo p e d c o u n tr y
W heat C lo th W heat C lo th
( k ilo s m ) (m e tre s m ) ( k ilo s m ) (m e tre s m )
a 1000 0 g 1200 0
b 800 100 h 1000 400
c 600 200 I 800 800
d 400 300 j 600 1200
e 200 400 k 400 1600
f 0 500 l 200 2000
m 0 2400

1000 a 2400

b Less developed Developed

800 2000
country country

Wheat (kilos m)
Wheat (kilos m)

c 1600
600
1200
g
d h
400 i
800 j
200 e k
400
l
f m
0 0
0 200 400 600 800 1000 0 400 800 1200 1600 2000 2400
Cloth (metres m) Cloth (metres m)
 Pre-trade production and consumption possibilities
L e s s d e v e lo p e d c o u n tr y D e v e lo p e d c o u n tr y
W heat C lo th W heat C lo th
( k ilo s m ) (m e tre s m ) ( k ilo s m ) (m e tre s m )
a 1000 0 g 1200 0
b 800 100 h 1000 400
c 600 200 I 800 800
d 400 300 j 600 1200
e 200 400 k 400 1600
f 0 500 l 200 2000
m 0 2400

1000 a 2400

b Less developed Developed

800 2000
country country

Wheat (kilos m)
Wheat (kilos m)

c 1600
600
1200
g
d h Slope 1/2
400 Slope 2/1 i
800 j
200 e k
400
l
f m
0 0
0 200 400 600 800 1000 0 400 800 1200 1600 2000 2400
Cloth (metres m) Cloth (metres m)
 Effect of trade on consumption possibilities

1000 2400

800 2000
Slope 1/1 Slope 1/1
1600

Wheat (kilos m)
Wheat (kilos m)

600
1200
400
800
200
400

0 0
0 200 400 600 800 1000 0 400 800 1200 1600 2000 2400

Cloth (metres m) Cloth (metres m)

Less developed country Developed country

 Effect of trade on consumption possibilities

Imports
1000 2400
600
800 2000

600 Exports 1600

Wheat (kilos m)
Wheat (kilos m)

600
1200
400
x 800 Exports

Imports
200 y 600
400
600
0 0
0 200 400 600 800 1000 0 400 800 1200 1600 2000 2400

Cloth (metres m) Cloth (metres m)

Less developed country Developed country