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 Yosemite and Denali. Both countries produce corn and basil, each initially (i.e., before specialization and trade) producing 36 million pounds of corn and 18 million pounds of basil, as indicated by the grey stars marked with the letter A. BASIL (Millions of pounds) 84 60 48 36 12 PPF Yosemite ? BASIL (Millions of pounds) 96 84 72 PPF 60 48 36 24 12 Denali о 12 24 36 48 60 72 CORN (Millions of pounds) 84 96 12 24 36 48 72 84 96 CORN (Millions of pounds) ? while Denali has Suppose that Yosemite and Yosemite has a comparative advantage in the production of a comparative advantage in the production of Denali 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 corn and million pounds of basil. Suppose that Yosemite and Denali 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 24 million pounds of corn for 24 million pounds of basil. This ratio of goods is known as the price of trade between Yosemite and Denali. The following graph shows the same PPF for Yosemite as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Yosemite's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. BASIL (Millions of pounds) BASIL (Millions of pounds) 96 84 72 60 36 PPF 24 12 12 24 Yosemite 36 48 60 72 84 96 CORN (Millions of pounds) + Consumption After Trade The following graph shows the same PPF for Denali as before, as well as its initial consumption at point A. As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Denali's consumption after trade. 36 24 12 96 84 72 PPF Denali 12 24 36 48 60 72 CORN (Millions of pounds) 84 + Consumption After Trade True or False: Without engaging in international trade, Yosemite and Denali 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.) True False