World output increases if countries specialize in the production of the goods in which they
have a comparative advantage.Not every possible pattern of specialization, however, is beneficial for the
world. In our example, if Canada were to specialize in cloth and the EU in
wheat, total world output would fall. To see this, note that in order to
produce one extra metre of cloth in Canada, five kilograms of wheat must
be sacrificed (see Table 32-2 ). Similarly, in order to produce four extra
kilograms of wheat in the EU, two metres of cloth must be sacrificed.
Thus, if each country produced these additional units of the “wrong”
good, total world output of wheat would fall by one kilogram and total
output of cloth would fall by one metre.
Specialization of production against the pattern of comparative advantage leads to a decline in
total world output.Production Possibilities Boundaries
We have discussed comparative advantage in terms of opportunity costs.
We can also illustrate it by considering the two countries’ production
possibilities boundaries. Recall from Chapter 1 the connection between
a country’s production possibilities boundary and the opportunity costs of
production. The slope of the production possibilities boundary indicates
the opportunity costs. The existence of different opportunity costs across
countries implies comparative advantages that can lead to gains from
trade. Figure 32-3 illustrates how two countries can both gain from
trade when they have different opportunity costs, which are independent
of the level of production. An alternative diagrammatic illustration of the