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 potatoes and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. * FIRST PICTURE HERE Candonia has a comparative advantage in the production of , while Lamponia has a comparative advantage in the 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 potatoes and -- million pounds of sugar. 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 8 million pounds of potatoes for 8 million pounds of sugar. This ratio of goods is known as the price of trade between Candonia and Lamponia. 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. * SECOND PICTURE GOES HERE True or False: Without engaging in international trade, Candonia and Lamponia 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.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 Lamponia. Both countries produce potatoes and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A.

* FIRST PICTURE HERE

Candonia has a comparative advantage in the production of , while Lamponia has a comparative advantage in the 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 potatoes and -- million pounds of sugar.

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 8 million pounds of potatoes for 8 million pounds of sugar. This ratio of goods is known as the price of trade between Candonia and Lamponia.

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.

* SECOND PICTURE GOES HERE

True or False: Without engaging in international trade, Candonia and Lamponia 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.)

Candonia
Lamponia
64
64
56
56
48
48
PPF
40
40
32
32
24
PPF
24
16
16
A
8
8
8
16
24
32
40
48
56
64
8
16
24
32
40
48
56
64
POTATOES (Millions of pounds)
POTATOES (Millions of pounds)
SUGAR (Millions of pounds)
SUGAR (Millions of pounds)
ㅇ

Candonia
64
56
Consumption After Trade
48
40
32
24
PPF
16
8
16
24
32
40
48
56
64
POTATOES (Millions of pounds)
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.
Lamponia
64
56
Consumption After Trade
48
PPF
40
32
24
16
8
8
16
24
32
40
48
56
64
POTATOES (Millions of pounds)
SUGAR (Millions of pounds)
SUGAR (Millions of pounds)

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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