If you're seeing this message, it means we're having trouble loading external resources on our website.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

# When there aren't gains from trade

In a previous lesson we learned that there is the potential for two countries to gain from trade. But it is also possible that there might not be the potential to gain from trade. In this video, we explore the circumstance that would lead to there being no gains from trade.

## Want to join the conversation?

• I have a question! Is it possible that a country can have both comparative advantage?
• A country cannot have comparative advantage in both goods! That's the whole idea of "comparative". For example, I can be relatively better at baking brownies than at baking cookies, but I cannot at the same time be relatively better at baking cookies than baking brownies.
• At the same time, country A can produce more goods than country B, so A can sell it to B and still have more gain than B?
Do I get it right? Thank you
• How does the math work?
• The math involved in determining opportunity cost and trade terms is based on comparing the ratios of input or output for different goods in different entities. Opportunity cost is calculated by considering the trade-offs involved in producing one unit of a good instead of another. Trade terms are determined based on ensuring that both parties benefit from the exchange by trading at prices below their respective opportunity costs.
(1 vote)
• I'm curious... What happens if a country had a lower opportunity cost in producing BOTH goods.
• Even if a country is better at producing both goods, trading can still be beneficial if it specializes in the good it's comparatively better at making.
(1 vote)
• At , Sal says that since they have the same slope, they have the same O.C. and therefore no comparative advantage. So I wonder, if you have two PPCs and they have different slopes, would their intersection point mean anything?
• If two production possibility curves (PPCs) have different slopes, it means that the opportunity costs of producing one good in terms of the other differ between the two entities or countries. In this case, the intersection point of the two PPCs represents the level of production where the opportunity costs for both goods are equal for both entities. It doesn't necessarily indicate a comparative advantage, but it does show a point where the trade-offs between producing one good over the other are the same for both parties. This point can be used as a reference for potential trade, but further analysis is needed to determine comparative advantage and optimal trading terms.
(1 vote)
• Country A has the absolute advantage so for country B there will be some benefit of trading.. Imagine, country A does not need so many bananas, so it would be beneficial for country B to trade then..
(1 vote)
• Not true. Because their comparative OCs are the same, it just makes sense for them to split the production between apples and bananas. They can't get a better trade deal than their OC.
• I have a problem. I submitted an assignment recently and in it person A had an opportunity cost of producing 1 piece of firewood of 3 fishes. Person B had an opportunity cost of producing 1 piece of wood of 2 fishes. The question that was asked was "what is the maximum number of fishes person B will be willing to pay person A for one bundle of wood"

I reasoned that since the opportunity cost of producing 1f for person B was 1/2 *w, he would want to trade at a price greater than his opportunity cost because if he were to trade 2f for 1w he wouldn't be gaining anything but in fact would be wasting his time (and isn't time our most precious commodity)! So, the maximum he would want to trade his fish for would be 1f for 1 wood. The actual answer is 2 fishes for 1 wood. I just can't bring myself to agree with this. Can someone please help me out?
• Your reasoning is generally correct. Person B's opportunity cost of producing one piece of wood is 2 fishes, so they would want to trade at a price higher than their opportunity cost to make the trade worthwhile. However, it seems there might be a misunderstanding or misinterpretation of the question or the information given. If Person A's opportunity cost of producing one piece of wood is 3 fishes, and Person B's opportunity cost of producing one piece of wood is 2 fishes, then Person B indeed has a comparative advantage in producing wood. In this case, Person B would be willing to pay less than their opportunity cost for one bundle of wood, not more. The correct answer would indeed be 1 wood for 2 fishes, as Person A values wood more than fishes due to their higher opportunity cost.
(1 vote)
• How come you just don't do it in basic math instead of making it more difficult?
(1 vote)
• There are different formulas for solving these equations because if we were just to use "basic math" our answers would be incorrect.
(1 vote)
• I think in the example, Country A has absolute advantages in both apples and bananas. Am I correct?
(1 vote)
• Yes, that is correct. Given the available resources, Country A has a higher production possibilities frontier than Country B.
(1 vote)