Maldonia Desonia 48 48 42 42 36 36 PPF 30 30 24 24 18 PPF 18 12 12 A. -- - --- -- 6 6. 12 18 24 30 36 42 48 6 12 18 24 30 36 42 48 GRAIN (Millions of pounds) GRAIN (Millions of pounds) Maldonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Maldonia and Desonia 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 grain and million pounds of tea. TEA (Millions of pounds) TEA (Millions of pounds)
Maldonia Desonia 48 48 42 42 36 36 PPF 30 30 24 24 18 PPF 18 12 12 A. -- - --- -- 6 6. 12 18 24 30 36 42 48 6 12 18 24 30 36 42 48 GRAIN (Millions of pounds) GRAIN (Millions of pounds) Maldonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Maldonia and Desonia 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 grain and million pounds of tea. TEA (Millions of pounds) TEA (Millions of pounds)
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter19: International Trade
Section: Chapter Questions
Problem 3QFR
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Transcribed Image Text: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 Desonia. Both countries produce grain and tea, each initially
(i.e., before specialization and trade) producing 18 million pounds of grain and 9 million pounds of tea, as indicated by the grey stars marked with the
letter A.
Maldonia
Desonia
48
48
42
42
36
36
PPF
30
24
18
PPF
18
12
12
9.
12
18
24
30
36
42
48
0.
6.
12
18
24
30
36
42
48
GRAIN (Millions of pounds)
GRAIN (Millions of pounds)
Maldonia has a comparative advantage in the production of
while Desonia has a comparative advantage in the
production of
Suppose that Maldonia and Desonia specialize in the production of the goods in which each has a
TEA (Millions of pounds)
24
30
TEA (Millions of pounds)
Transcribed Image Text:Maldonia
Desonia
48
48
42
42
36
36
PPF
30
30
24
18
PPF
18
12
12
A
6.
12
18
24
30
36
42
48
6.
12
18
24
30
36
42
48
GRAIN (Millions of pounds)
GRAIN (Millions of pounds)
Maldonia has a comparative advantage in the production of
while Desonia has a comparative advantage in the
production of
Suppose that Maldonia and Desonia 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 grain and
million pounds of
tea.
Suppose that Maldonia and Desonia 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 18 million pounds of grain for 18 million pounds of tea. This ratio of goods is known as the price of
trade between Maldonia and Desonia.
TEA (Millions of pounds)
24
TEA (Millions of pounds)
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