Establishing limits??

Question

N. Kamazoon can produce the combo of 18 televisions and 24 widgets with its stock of resources. S. Kamazoon can produce 15 televisions and 15 widgets with its resources. Explain why this information does not allow you to establish limits on the terms of trade between these two countries.

Answer 1

"between these two countries"--why would they trade if they both made the same thing? The closest thing that could spur trade is if one side, big producer or small, has a higher demand than what they produce. So the issue then becomes, with what will they trade?

The US is a major producer of crude oil in the world, some 8 times what Iraq produced before the war. The problem is that we consume more oil than we produce, so we have to trade to get it elsewhere. The problem becomes worse in that we have abandoned large parts of our industrial capacity to China and other cheap labor countries. Eventually, we either have to develop some new product class or technology (nanotech, perhaps) or we reach a point when mere money will not buy the foreign goods we rely on. At that point, we become somewhat like S. Kamazoon in your partly-told tale.