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 produce grain and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) 32 28 24 16 12 8 4 0 0 PPF 4 Candonia 12 16 20 24 GRAIN (Millions of pounds) 28 32 (?) TEA (Millions of pounds) 32 28 24 20 16 12 8 4 0 0 PPF 4 I Sylvania 8 12 16 20 24 GRAIN (Millions of pounds) 28 32 ? Candonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the 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 million pounds of tea and million pounds of grain. 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 grain for 12 million pounds of tea. 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 trade. Note: Dashed drop lines will automatically extend to both axes.
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 produce grain and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) 32 28 24 16 12 8 4 0 0 PPF 4 Candonia 12 16 20 24 GRAIN (Millions of pounds) 28 32 (?) TEA (Millions of pounds) 32 28 24 20 16 12 8 4 0 0 PPF 4 I Sylvania 8 12 16 20 24 GRAIN (Millions of pounds) 28 32 ? Candonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the 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 million pounds of tea and million pounds of grain. 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 grain for 12 million pounds of tea. 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 trade. Note: Dashed drop lines will automatically extend to both axes.
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter19: International Trade
Section: Chapter Questions
Problem 3QFR
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