A few years had passed and Wonder raise a decent size of poultry of chickens. Wonder told Econ, " Just consider that between two of us, we are now able to produce annually more fruits and chickens more to meet our family nees. So, why should we now trade with G-land?" Econ said, " You are right, dear. But let me think over and discuss with G-land couple on this".
Soon they met G-land people by visiting them in their own boat. G-land people also said that they did not want to trade with W-land, because they also had all that they needed. Econ said to himself that if both the countries have become self-sufficient and self-reliant, it was a great thing. So, there is no need to trade now. They stopped trading for a few years till Wonder Economist (Wecon) grew up a bit and started applying his mind.
Wecon talked to his parents as also the parents of his friend in G-land. Then, he did some calculations and produced a chart like this;
W-land maximum capacity to produce was either 10000 fruits, or 5000 chickens, besides 2000 fish in off season spare time., while G-land capacity was to produce 10000 fruits or 6000 chickens. Thus, G-land was more productive than W-land in respect of chickens they were equally productive in fruits. He shared this information with everyone. His parents were a bit disappointed, while his friend's parents were very proud that they were more productive.
Then Wecon told them that this information suggeste that G-land should produce only chickens and W-land should produce only fruits. And that would benefit both the countries. Both sets of parents were perplexed demanded to know how this were possible. Wecon replied as follows. Let us assume that to start with both G-land and W-land produced only fruits. So, each would produce 10000 fruits each. Now, if W-land wants to produce, say 1000 chieckens, it would have to cut fruit production by 2000 (so that they can divert one-fifth of their time and energy from fruit plucking to chicken raising: 10,000 fruit = 5000 chicken or 2000 fruits = 1000 chickens). On the other hand, if G land wants to produce 1000 chickens, they have to divert only one-sixth of their time from plucking of fruits to raising chicken and therefore would have to cut fruit production by 1333 only. This means that in terms of number of fruits foregone/ sacrificed, chicken in costilier in W-land than in G-land. It is in the interest of G-land, therefore to sell 1000 chickens to W-land and buy more than 1333 fruits, say 1500 fruits from W-land which W-land would be willing to do because if they were to produce 1000 chickens themselves they would have to reduce their fruit production by 2000. This means that G-land had a comparative advatage in chicken raising while W-and had comparative advantage in plucking fruits.
This appeared interesting. But the parents demande that Wecon illustrates how they would benefit. So, Wecon continued and said that let both countries to start with allocate half of their time and effort to both chicken and fruits. Then what would be the production scenario? W-land would produce 5,000 fruits and 2,500 chickens. G-land would produce 5000 fruits and 3000 chickens. Total apple production would be 10,000 and chicken production 5500. Now, let G-land produce only chicken and W-land only fruits. Total production would be 10,000 apples entirely by W-land and 6000 chickens entirely by G-land. Thus there is a net gain 500 chickens in total production and no loss in fruit production For both the countries. Now, W-land sells 5000 fruits to -land in exchange for 2750 chickens. So both of the countries are better off now: Both countries continue to have 5000 fruits each as before, but G-land has 3250 chickens instead of 3000 chickens and while W-land has 2750 chickens instead of 2500 chickens. So instead of producing both fruits and chickens they should specialise in the production of that in which each has comparative advantage.
Everyone understood how trading contributed to gains to both the countries. The international trade between the two countries resumed: annually, G-land sold 2750 chickens to and bought in return 5000 fruits (price of a fruit was thus equal to 0.55 chicken or price of a chicken is 1.8 fruits approximately).
Since G-land produced chickens only, their GDP was 6000 C (chicken as currency unit), or 10,800 F . W-land GDP was 10000 F which is equivalent to (at the above price) 5500 chickens. So, G-land was a larger economy and slightly richer than W-land in terms of per capita income since both had a population of three each.
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