Comparative Advantage – Two-Country PPC
Global Economics
This diagram uses production possibility curves (PPCs) for two countries—Grania and Chipia—to illustrate absolute and comparative advantage and the potential gains from trade.
Curves and Elements
grania ppc
Grania PPC (red): Shows Grania’s production possibilities; steeper, indicating comparative advantage in grain.
chipia ppc
Chipia PPC (blue): Shows Chipia’s production possibilities; flatter, indicating comparative advantage in computer chips.
grain axis
Vertical axis measures grain output.
chips axis
Horizontal axis measures computer chip output.
comparative advantage notes
Bulleted notes identify each country’s comparative and absolute advantages.
Chipia’s PPC lies outside Grania’s PPC, indicating that Chipia has an absolute advantage in producing both grain and computer chips (it can produce more of each good with the same resources).
The steeper slope of Grania’s PPC means it has a lower opportunity cost in grain production, giving Grania a comparative advantage in grain.
The flatter slope of Chipia’s PPC indicates a lower opportunity cost in chip production, giving Chipia a comparative advantage in computer chips.
By specializing according to comparative advantage—Grania in grain and Chipia in chips—and trading, both countries can consume beyond their individual PPCs.
This model underpins the principle that even if a country is less efficient at producing all goods (no absolute advantage), it can still gain from trade by specializing in goods where it has a lower opportunity cost.
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