produce lemons and coffee, each initially (i.e., before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as indicated by the grey stars marked with the letter A. Candonia has a comparative advantage in the production of lemons, while Sylvania has a comparative advantage in the production of coffee. Suppose that Candonia 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 36 million pounds of lemons and 36 million pounds of coffee. Suppose that Candonia 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 lemons for 12 million pounds of coffee. This ratio of goods is known as the price of trade between Candonia and Sylvania. The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after the trade. Note: Dashed drop lines will automatically extend to both axes. True or False: Without engaging in international trade, Candonia and Sylvania would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) -True or -False

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.4P

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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 Candonia and Sylvania. Both countries

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produce lemons and coffee, each initially (i.e., before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as indicated by the grey stars marked with the letter A.

Candonia has a comparative advantage in the production of lemons, while Sylvania has a comparative advantage in the production of coffee. Suppose that Candonia 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 36 million pounds of lemons and 36 million pounds of coffee.

Suppose that Candonia 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 lemons for 12 million pounds of coffee. This ratio of goods is known as the price of trade between Candonia and Sylvania.

The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after the trade.

Note: Dashed drop lines will automatically extend to both axes.

True or False: Without engaging in international trade, Candonia and Sylvania would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.)

-True

-False

The following graph shows the same PPF for Candonia as before, as well as its initial consumption
at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after
trade.
Note: Dashed drop lines will automatically extend to both axes.
COFFEE (Millions of pounds)
48
42
COFFEE (Millions of pounds)
36
30
24
18 PPF
12
6
0
48
42
36 PPF
30
24
18
0
12
6
0
6
The following graph shows the same PPF for Sylvania as before, as well as its initial consumption at
point A.
0
As you did for Candonia, place a black point (plus symbol) on the following graph to indicate
Sylvania's consumption after trade.
12
6
1
|
Candonia
18
24
30
LEMONS (Millions of pounds)
A
12
36
Sylvania
A
18
24
30
LEMONS (Millions of pounds)
42
36
48
42
++
Consumption After Trade
48
(?)
Consumption After Trade
(?)

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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