Consumption of both corn and tomatoes

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Now, let's say that Mexico trades 200 tons of tomatoes to the United States for 200 tons of corn. Where are our countries now? Well, Mexico has 200 tons of both goods-much more than the 130 or 140 it had before. And the United States has 400 tons of both goods-much more than the 330 or 340 tons it had before. Once again, both countries are consuming beyond their production possibilities frontier. This instance is even more extreme than the first example. In this case, Mexico was worse at producing both goods, and will realize substantial gains from trade. Likewise, in this example, the United States increased its consumption of both corn and tomatoes, even though it is better at producing tomatoes and better at producing corn. Why did we see these results?

Reference no: EM134040076

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