U.S. produces: Eeither 24 million tons of Cement or 24 million tons of Wheat Mexico produces: Eeither 30 million tons of Cement or 10 million tons of Wheat * Steeper slope is in mexico: -30/10 = -3, versus -24/24 = -1 in the U.S. * So, Mexico has a comparative advantage in cement, which means it should export cement to the U.S. Question: Would mexico agree to trade 1 million tons of its cement for 2 million tons of wheat from the U.S.? Would te U.S. agree to that? I was told that as long as the ratio of the trade falls within the two slopes, the trade is beneficial to both countries. So, 1 cement / 2 wheat = 0.50, which is not within the range of 1 to 3, so it is not beneficial to both countries, right? But would the U.S. agree to that trade? How do we do that using slopes (not common sense or intuition)? Also, would Mexico agree to that?
> * So, Mexico has a comparative advantage in > cement, which means it should export cement to the > U.S. This is all you really need to know IMO. I think you may be confusing yourself with the rest of it… just be able to figure out who has the comparative advantage and know that, if there is one, both countries benefit from trade.
Unfortunately, it is not correct to conclude that both countries would agree to trade 1 million tons of Mexico’s cements for 2 million tons of U.S. wheat.
Based on a question or on reality?
Yeah, this is actually based on a question from Stalla in the econ section. I am not doing much in the “reality” corner, as I am just trying to find the correct way to answer questions this late in the game 
This one messed me up as well. I almost think that Stalla messed up on this one
The material emphasizes on whether two countries are better off by trading if there is a comparative advantage … Assuming there is country A and B and there is a comparative advantage if both countries specialize in, lets say product 1 and 2, respectively, then both countries will be better off by trading PERIOD! The material does not go into what if one of the countries does not want to trade nonsense.
I can’t say much about Stalla since I use Schweser, but I’ve been through econ a couple of times and I remember nothing about calculating slope ranges or how to interpret them. I don’t have my econ book on me so I could be totally wrong… but it sounds like either Stalla’s coming up with a hard way to solve a relatively easy question or Schweser dropped the ball on this section. I’ll check on that once I get home!
Currently, if mexico gives up 1 ton of cement, it gets .333 tons of wheat. They would welcome a deal where they could give up 1 ton of cement for 2 tons of wheat. Currently if the US gives up 2 tons of wheat, they get 2 tons of cement. They would reject a deal where they had to give up 2 tons of wheat and get 1 ton of cement.
dlpicket, yes this is the correct reasoning, but I wanted to see if I could also easily see that with the slope concept, which makes things quite easy when you apply it.