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4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce potatoes and sugar, each initially (I.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. ? Maldonla Lamponia 32 28 SUGAR (Millions of pounds) 24 30 16 PPF SUGAR (Millions of pounds) 32 28 24 20 16 12 n 12,6 PPF 0 0 4 0 4 8 12 16 20 24 28 8 12 16 20 24 28 32 POTATOES (Millions of pounds) 32 POTATOES (Millions of pounds) while Lamponia has a comparative advantage in the Maldonia has a comparative advantage in the production of production of Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of million pounds of sugar and million pounds of potatoes.

4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce potatoes and sugar, each initially (I.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. ? Maldonla Lamponia 32 28 SUGAR (Millions of pounds) 24 30 16 PPF SUGAR (Millions of pounds) 32 28 24 20 16 12 n 12,6 PPF 0 0 4 0 4 8 12 16 20 24 28 8 12 16 20 24 28 32 POTATOES (Millions of pounds) 32 POTATOES (Millions of pounds) while Lamponia has a comparative advantage in the Maldonia has a comparative advantage in the production of production of Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of million pounds of sugar and million pounds of potatoes.

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains Rrom Trade
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4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce potatoes and sugar, each initially (I.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. ? Maldonia Lamponia 32 28 24 30 16 SUGAR (Millions of pounds) PPF SUGAR (Millions of pounds) 32 28 24 20 16 12 n 0 12,6 0 4 4 8 12 16 20 24 28 32 8 12 16 20 24 28 32 POTATOES (Millions of pounds) POTATOES (Millions of pounds) Maldonia has a comparative advantage in the production of while Lamponia has a comparative advantage in the production of Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of potatoes. million pounds of sugar and million pounds of 0 PPF
Transcribed Image Text:4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce potatoes and sugar, each initially (I.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. ? Maldonia Lamponia 32 28 24 30 16 SUGAR (Millions of pounds) PPF SUGAR (Millions of pounds) 32 28 24 20 16 12 n 0 12,6 0 4 4 8 12 16 20 24 28 32 8 12 16 20 24 28 32 POTATOES (Millions of pounds) POTATOES (Millions of pounds) Maldonia has a comparative advantage in the production of while Lamponia has a comparative advantage in the production of Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of potatoes. million pounds of sugar and million pounds of 0 PPF
Suppose that Maldonia and Lamponia agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 4 million pounds of potatoes for 4 million pounds of sugar. This ratio of goods is known as the price of trade between Maldonia and Lamponia consumption at point A Place a black paint (plus symbol) on the The following graph shows the same PP for Maldonia as before, as well as its graph to indicate Maldonia's consumption after trade Note: Dashed drep lines will automatically extend to both as Maldonia PPP SUGAR (of poun P Consumption Afer Tra 24 IN B POTATOES (Mrs of po The following graph shows the same for Lamponia as before, as well a al consumption at point A As you for Maldi, place a black point us be the following graph to indicate Lamponia's consumption after trade Lamponi Afer Trad . . " POTATOES of True or fase with engaging in international trade, Madina and Camps would und Mist Rese the son on the answers y prevyed on this pag 820 SUGAR Mof able to consume at the after-trade consumption
Transcribed Image Text:Suppose that Maldonia and Lamponia agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 4 million pounds of potatoes for 4 million pounds of sugar. This ratio of goods is known as the price of trade between Maldonia and Lamponia consumption at point A Place a black paint (plus symbol) on the The following graph shows the same PP for Maldonia as before, as well as its graph to indicate Maldonia's consumption after trade Note: Dashed drep lines will automatically extend to both as Maldonia PPP SUGAR (of poun P Consumption Afer Tra 24 IN B POTATOES (Mrs of po The following graph shows the same for Lamponia as before, as well a al consumption at point A As you for Maldi, place a black point us be the following graph to indicate Lamponia's consumption after trade Lamponi Afer Trad . . " POTATOES of True or fase with engaging in international trade, Madina and Camps would und Mist Rese the son on the answers y prevyed on this pag 820 SUGAR Mof able to consume at the after-trade consumption
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