sugar Candonia has a comparative advantage in the production of while Lamponia has a comparative advantage in the Suppose that Candonia and Lamponia specialize in the production of the goods in which each has a production of grain comparative advantage. After specialization, the two countries can produce a total of million pounds of sugar and million pounds of grain. I
sugar Candonia has a comparative advantage in the production of while Lamponia has a comparative advantage in the Suppose that Candonia and Lamponia specialize in the production of the goods in which each has a production of grain comparative advantage. After specialization, the two countries can produce a total of million pounds of sugar and million pounds of grain. I
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 Candonia and Lamponia. Both countries produce grain and sugar, each
initially (i.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of sugar, as indicated by the grey stars
marked with the letter A.
SUGAR (Millions of pounds)
64
56
48 PPF
40
32
24
16
8
0
0
8
Candonia
16 24 32 40 48
GRAIN (Millions of pounds)
56 64
(?)
SUGAR (Millions of pounds)
64
56
48
40
32
24
16
8
0
PPF
————
0 8
Lamponia
A
16 24 32 40 48
GRAIN (Millions of pounds)
56 64
?
Candonia has a comparative advantage in the production of
sugar
while Lamponia has a comparative advantage in the
grain
production of
▼ . Suppose that Candonia and Lamponia 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 sugar and
grain.
million pounds of
Suppose that Candonia and Lamponia 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 24 million pounds of grain for 24 million pounds of sugar. This ratio of goods is known as the price of
trade between Candonia and Lamponia.
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Follow-up Question
Transcribed Image Text: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.
SUGAR (Millions of pounds)
64
56
48 PPF
40
2
+
16
8
0
0
8
16
Candonia
24
32
40
GRAIN (Millions of pounds)
48
56
64
+
Consumption After Trade
The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A.
Transcribed Image Text:The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A.
As you did for Candonia, place a black point (plus symbol) on the following graph to indicate Lamponia's consumption after trade.
SUGAR (Millions of pounds)
64
56
48
40
16
0
0
PPF
True
8
False
16
Lamponia
24
32
40
GRAIN (Millions of pounds)
48
56
64
True or False: Without engaging in international trade, Candonia and Lamponia would have been able to consume at the after-trade consumption
bundles. (Hint: Base this question on the answers you previously entered on this page.)
Consumption After Trade
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