SUGAR (Millions of pounds) 2 16 14 12 10 8 PPC 2 4 6 8 Candonia 10 12 16 GRAIN (Millions of pounds) Consumption After Trade The following graph shows the same PPC for Sylvania 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 Sylvania's consumption after trade. SUGAR (Millions of pounds) 2 16 14 12 PPC 10 8 0 4 Sylvania 10 GRAIN (Millions of pounds) Consumption After Trade True or False: Without engaging in international trade, Candonia and Sylvania would not have been able to consume at the after-trade consumption bundles. (Hint: In answering this question, you may wish to refer to your previous answers.) True False 1. Specialization and trade A country may specialize in the production of a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Candonia and Sylvania. Both countries produce grain and sugar, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 16 14 12 10 2 PPC Candonia 0 0 2 4 8 10 14 16 GRAIN (Millions of pounds) SUGAR (Millions of pounds) 16 14 10 2 ༄ བྷ་ཥ༅་ཚ་。་“་ཨ 。 Sylvania PPC Slope: -1.5 X-Intercept: 8.00 Y-Intercept: 12.00 0 2 12 14 16 GRAIN (Millions of pounds) 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 grain and sugar. million pounds of 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 4 million pounds of grain for 4 million pounds of sugar. This ratio of goods is sometimes referred to as the terms of trade between two countries. In this case the two countries are Candonia and Sylvania. The following graph shows the same PPC 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. 16 Candonia +