Maldonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Maldonia 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 potatoes and million pounds of tea. Suppose that Maldonia 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 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price of trade between Maldonia and Sylvania.
Maldonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Maldonia 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 potatoes and million pounds of tea. Suppose that Maldonia 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 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price of trade between Maldonia and Sylvania.
Chapter2: Productions Possibilities, Opportunity Costs, And Economic Growth
Section: Chapter Questions
Problem 10SQ
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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 Sylvania. Both countries produce potatoes and tea, each
initially (i.e., before specialization and trade) producing 18 million pounds of potatoes and 9 million pounds of tea, as indicated by the grey stars
marked with the letter A.
Maldonia
Sylvania
48
48
42
42
36
36
PPF
30
24
24
18
PPF
18
12
12
6.
6.
12
18
24
30
36
42
48
6.
12
18
24
30
36
42
48
POTATOES (Millions of pounds)
POTATOES (Millions of pounds)
TEA (Millions of pounds)
TEA (Millions of pounds)
Transcribed Image Text:Maldonia has a comparative advantage in the production of
, while Sylvania has a comparative advantage in the
production of
Suppose that Maldonia 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 potatoes and
million pounds
of tea.
Suppose that Maldonia and Sylvania agree to trade. Each country focuses its resources on producing only the good in which it has
comparative
advantage. The countries decide to exchange 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price of
trade between Maldonia and Sylvania.
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