4. Specialization and trade 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 Freedonia and Desonia. Both countries produce grain and sugar, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. Freedonia Desonia 32 32 28 28 24 PPF 24 20 20 16 16 12 12 PPF 8 8. --- -- --- - 4 4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) GRAIN (Millions of pounds) Freedonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Freedonia and Desonia 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 million pounds of grain. SUGAR (Millions of pounds) SUGAR (Millions of pounds)
4. Specialization and trade 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 Freedonia and Desonia. Both countries produce grain and sugar, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. Freedonia Desonia 32 32 28 28 24 PPF 24 20 20 16 16 12 12 PPF 8 8. --- -- --- - 4 4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) GRAIN (Millions of pounds) Freedonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Freedonia and Desonia 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 million pounds of grain. SUGAR (Millions of pounds) SUGAR (Millions of pounds)
Principles of Macroeconomics (MindTap Course List)
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ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter3: Interdependence And The Gains Rrom Trade
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Transcribed Image Text:4. Specialization and trade
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 Freedonia and Desonia. Both countries produce grain and sugar, each
initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of sugar, as indicated by the grey stars
marked with the letter A.
Freedonia
Desonia
32
32
28
28
24
PPF
24
20
20
16
16
12
12
PPF
A
4.
4
4
8
12
16
20
24
28
32
4
8
12
16
20
24
28
32
GRAIN (Millions of pounds)
GRAIN (Millions of pounds)
Freedonia has a comparative advantage in the production of
, while Desonia has a comparative advantage in the
production of
. Suppose that Freedonia and Desonia 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
million pounds of
grain.
SUGAR (Millions of pounds)
SUGAR (Millions of pounds)
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