Self-sufficiency

Establishing a benchmark: self-sufficiency

Let us first consider an economy without trade between Portugal and England. Each country is self-sufficient, meaning it can only consume its own production. Suppose that they produce both goods, such that Portugal devotes 45% of its labor to wine production and 55% to cloth production, while England devotes 40% to wine and 60% to cloth. The amount of time that Italy and Portugal spend producing each good under self-sufficiency is based on their preferences.

The table below shows the total amount of wine and cloth produced in both countries under this self-sufficiency example. Combining the production of both countries, the economy as a whole would produce 950 bottles of wine and 3,350 meters of cloth. The table allows you to adjust the share of time each country spends producing wine to observe how total production changes when preferences change. To do so, insert the share of labor devoted to wine production in each country (between 0 and 1):

Self-sufficiency

Would Portugal and England benefit from opening their economies and trading with each other? In the following tabs, you will learn how specialization plays a role in this decision.