4. Specialization and tradeWhen 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 Maldonia and Lamponia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. NOTE:the options for the first drop down question is (grain, tea, neither grain nor tea, or both grain and tea) the options for the second drop down question is also (grain, tea, neither grain nor tea, or both grain and tea) MaldoniaLamponia6464565648PPF48404032322424PPF1618--8.81624 32 4048566481624 32 40485664GRAIN (Millions of pounds)GRAIN (Millions of pounds)Maldonia has a comparative advantage in the production of, while Lamponia has a comparative advantage in theproduction ofSuppose that Maldonia and Lamponia specialize in the production of the goods in which each has acomparative advantage. After specialization, the two countries can produce a total ofmillion pounds of tea andmillion pounds ofgrain.Suppose that Maldonia and Lamponia agree to trade. Each country focuses its resources on producing only the good in which it has a comparativeadvantage. The countries decide to exchange 16 million pounds of grain for 16 million pounds of tea. This ratio of goods is known as the price oftrade between Maldonia and Lamponia.The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on thegraph to indicate Maldonia's consumption after trade.Note: Dashed drop lines will automatically extend to both axes.TEA (Millions of pounds)TEA (Millions of pounds) Maldonia6456Consumption After Trade48PPF40241616243240485664GRAIN (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 Maldonia, place a black point (plus symbol) on the following graph to indicate Lamponia's consumption after trade.Lamponia6456Consumption After Trade484032PPF1616243240485664GRAIN (Millions of pounds)True or False: Without engaging in international trade, Maldonia and Lamponia would have been able to consume at the after-trade consumptionbundles. (Hint: Base this question on the answers you previously entered on this page.)O TrueFalseTEA (Milions of pounds)TEA (Milions of pounds)

Maldonia's opportunity cost of producing grain= 48/32= 1.5 tea Lamponia's opportunity cost of…

Answered: 4. Specialization and trade When a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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

NOTE:

the options for the first drop down question is (grain, tea, neither grain nor tea, or both grain and tea)

the options for the second drop down question is also (grain, tea, neither grain nor tea, or both grain and tea)