The production possibilities frontier (PPF) for Honduras and Brazil, representing hypothetical levels of production, are shown in the graphs. Assume that, without trade, each country is initially producing and consuming at point A on its PPF curve. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. Assume the countries agree to trade. The terms of trade are 6000 tons of bananas for 4000 tons of steel. Move the post‑trade consumption point for each country to reflect their post‑trade consumption. Which good will each country produce? Honduras will produce bananas and Brazil will produce steel. Brazil will produce both bananas and steel. Honduras will produce both bananas and steel. Honduras will produce steel and Brazil will produce bananas.

The production possibilities frontier (PPF) for Honduras and Brazil, representing hypothetical levels of production, are shown in the graphs. Assume that, without trade, each country is initially producing and consuming at point A on its PPF curve. Suppose these countries decide to trade. Each country will specialize in the production of the good for which it has a comparative advantage. Assume the countries agree to trade. The terms of trade are 6000 tons of bananas for 4000 tons of steel. Move the post‑trade consumption point for each country to reflect their post‑trade consumption. Which good will each country produce? Honduras will produce bananas and Brazil will produce steel. Brazil will produce both bananas and steel. Honduras will produce both bananas and steel. Honduras will produce steel and Brazil will produce bananas.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 17CTQ: Are differences in geography behind the differences in absolute advantages?

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