Freedonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the Suppose that Freedonia and Sylvania 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 lemons and million pounds of tea. Suppose that Freedonia and Sylvania 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 20 million pounds of lemons for 20 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Sylvania.
Freedonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the Suppose that Freedonia and Sylvania 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 lemons and million pounds of tea. Suppose that Freedonia and Sylvania 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 20 million pounds of lemons for 20 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Sylvania.
Chapter4: The Aggregate Economy
Section: Chapter Questions
Problem 4E
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