4. Specialization and trade When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of sugar, as indicated by grey points (star symbols) labeled point A. 18 PPF Maldonia has a comparative advantage in the production of production of 24 advantage), the most the two countries can produce is 10 30 Maldonia PPF 30 12 10 24 30 36 42 40 LEMONS (Mons of pounds) PPF Suppose that Maldonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are 1 pound of lemons for 1 pound of sugar. That is, Maldonia is willing to sell Lamponia 1 pound of lemons in exchange for 1 pound of sugar, and Lamponia is willing to sell Maldonia 1 pound of sugar in exchange for 1 pound of lemons. The countries decide to exchange 12 million pounds of lemons for 12 million pounds of sugar. The following graph shows the same PPP for Maldonia as before, as well as its initial consumption at point A. Use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Maldonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Maldonia's consumption after specialization and trade. O True Maldonia False 24 30 LEMONS (Millions of pounds) ? 30 D Lamponia 0 whille Lamponia has a comparative advantage in the If each fully specializes (that is, produces only the good for which each has a comparative million pounds of lemons and million pounds of sugar PPF 24 30 30 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Lamponia The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A. As you did for Maldonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Lamponia. Then place the black point (plus symbol) on the trading possibilities line to indicate Lamponia's consumption after specialization and trade. ? tet TPL Consumption After Trade 41 TPL ? + Consumption After Trade True or False: Without engaging in international trade, Maldonia and Lamponia would have been able to consume at the after-trade consumption bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.)

4. Specialization and trade When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of sugar, as indicated by grey points (star symbols) labeled point A. 18 PPF Maldonia has a comparative advantage in the production of production of 24 advantage), the most the two countries can produce is 10 30 Maldonia PPF 30 12 10 24 30 36 42 40 LEMONS (Mons of pounds) PPF Suppose that Maldonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are 1 pound of lemons for 1 pound of sugar. That is, Maldonia is willing to sell Lamponia 1 pound of lemons in exchange for 1 pound of sugar, and Lamponia is willing to sell Maldonia 1 pound of sugar in exchange for 1 pound of lemons. The countries decide to exchange 12 million pounds of lemons for 12 million pounds of sugar. The following graph shows the same PPP for Maldonia as before, as well as its initial consumption at point A. Use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Maldonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Maldonia's consumption after specialization and trade. O True Maldonia False 24 30 LEMONS (Millions of pounds) ? 30 D Lamponia 0 whille Lamponia has a comparative advantage in the If each fully specializes (that is, produces only the good for which each has a comparative million pounds of lemons and million pounds of sugar PPF 24 30 30 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Lamponia The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A. As you did for Maldonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Lamponia. Then place the black point (plus symbol) on the trading possibilities line to indicate Lamponia's consumption after specialization and trade. ? tet TPL Consumption After Trade 41 TPL ? + Consumption After Trade True or False: Without engaging in international trade, Maldonia and Lamponia would have been able to consume at the after-trade consumption bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.)

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 5PA

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Please answer Graph 3 & 4 TPL green line

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4. Specialization and trade
When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner.
Because of this comparative advantage, both countries benefit when they specialize and trade with each other.
The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each
initially (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of sugar, as indicated by grey points (star
symbols) labeled point A.
SUGAR (Milions of pounds)
10
12
•
42
0
98
30
18
Maldonia has a comparative advantage in the production of
production of
advantage), the most the two countries can produce is
24
12
D
42
0
30
PPF
24
18
30 PPF
12
8
PPF
0
Suppose that Maldonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are 1 pound of lemons
for 1 pound of sugar. That is, Maldonia is willing to sell Lamponia 1 pound of lemons in exchange for 1 pound of sugar, and Lamponia is willing to sell
Maldonia 1 pound of sugar in exchange for 1 pound of lemons. The countries decide to exchange 12 million pounds of lemons for 12 million pounds of
sugar.
The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A. Use the green line (triangle symbol) to
plot the trading possibilities line (TPL) for Maldonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Maldonia's
consumption after specialization and trade.
Maldonia
12 10 24 30 36
LEMONS (Milions of pounds)
0
O True
O False
12
42
Maldonia
18
24
30
LEMONS (Millions of pounds)
40
0 12 18
Lamponia
36
30
LEMONS (Millions of pounds)
SUGAR (Milions of pound
42
48
48
30
42
The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A.
30
24
while Lamponia has a comparative advantage in the
If each fully specializes (that is, produces only the good for which each has a comparative
million pounds of lemons and
million pounds of sugar.
As you did for Maldonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Lamponia. Then place the black point (plus
symbol) on the trading possibilities line to indicate Lamponia's consumption after specialization and trade.
(?)
48
10
0
0
PPF
6 12 18 24 30 26 42 40
LEMONS (Millions of pounds)
Lamponia
TPL
++
Consumption After Trade
(?)
TPL
last
(?)
Consumption After Trade
True or False: Without engaging in international trade, Maldonia and Lamponia would have been able to consume at the after-trade consumption
bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.)

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