Illustration of the Gains from Trade In the absence of trade, the United States might choose to produce and consume combination A (90W and 60C) on its production possibility frontier (see Figure 2.2), and the United Kingdom might choose combination A(40W and 40C). With trade possible, the United States would specialize in the production of wheat (the commodity of its comparative advantage) and produce at point B (180W and 0C) on its production possibility frontier. Similarly, the United Kingdom would specialize in the production of cloth and produce at B(0W and 120C). If the United States then exchanges 70W for 70C with the United Kingdom, it ends up consuming at point E (110W and 70C), and the United Kingdom ends up consuming at E(70W and 50C). Thus, the United States gains 20W and 10C from trade (compare point E with point A in Figure 2.2), and the United Kingdom gains 30W and 10C (compare point Awith point E). 120 Cloth 70 60 0 U.S. E A 90 Wheat FIGURE 2.2. The Gains from Trade. 110 180 Cloth B B’ 120 50 40 U.K. A’ E’ 0 40 60 Wheat 70 In the absence of trade, the United States produces and consumes at A, and the United Kingdom at A. With trade, the United States specializes in the production of wheat and produces at B, while the United Kingdom specializes in the production of cloth and produces at B. By exchanging 70W for 70C with the United Kingdom, the United States ends up consuming at E (and gains 20W and 10C), while the United Kingdom ends upconsuming at E(and gains 30W and10C).