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 itstrading 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 Desonia. Both countries produce lemons and sugar, eachinitially (i.e., before specialization and trade) producing 6 million pounds of lemons and 3 million pounds of sugar, as indicated by the grey starsmarked with the letter A.CandoniaDesonla161614141212PPF1010 +PPF41012141621410121416LEMONS (Milions of pounds)LEMONS (Millions of pounds)Candonia has a comparative advantage in the production ofwhile Desonia has a comparative advantage in theproduction ofcomparative advantage. After specialization, the two countries can produce a total of- Suppose that Candonia and Desonia specialize in the production of the goods in which each has a|million pounds of|million pounds of lemons andsugar.Suppose that Candonia and Desonia agree to trade. Each country focuses its resources on producing only the good in which it has a comparativeadvantage. The countries decide to exchange 4 million pounds of lemons for 4 million pounds of sugar. This ratio of goods is known as the price oftrade between Candonia and Desonia.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 thegraph to indicate Candonia's consumption after trade.Note: Dashed drop lines will automatically extend to both axes.Candonia1614Consumption After Trade1210PPF(spunod jo SUOIW) aVons(spunod jo suoIWSUGAR (Milions of pounds) 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 thegraph to indicate Candonia's consumption after trade.Note: Dashed drop lines will automatically extend to both axes.Candonia1614Consumption After Trade1210PPF424610121416LEMONS (Millians af pounds)The following graph shows the same PPF for Desonia 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 Desonia's consumption after trade.Desonia1614Consumption After Trade12PPF102410121416LEMONS (Milians af pounds)True or False: Without engaging in international trade, Candonia and Desonia would have been able to consume at the after-trade consumption(Hint: Bathis question on the answers you previously entered on this page.)O TrueO False(spunod jo suoIw avonsSUGAR (Milions of pounds)

Name: 4. Specialization and tradeWhen a country has a comparative advantage
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Description: 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 itstrading partner. Then the country will specialize in the production of this

Trade based on comparative advantage leads to the efficient use of scarce resources.

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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 Candonia and Desonia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 6 million pounds of lemons and 3 million pounds of sugar, as indicated by the grey stars marked with the letter A. Candonia Desonia 16 14 14 12 12 PPE 10 10 PPF 0 2 10 12 14 16 2 10 12 14 16 LEMONS (Milions of pounds) LEMONS (Millions of pounds) Candonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of Suppose that Candonia 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 lemons and million pounds of sugar. SUGAR (Milions of pounds) SUGAR (Milions 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 Candonia and Desonia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 6 million pounds of lemons and 3 million pounds of sugar, as indicated by the grey stars marked with the letter A. Candonia Desonia 16 14 14 12 12 PPE 10 10 PPF 0 2 10 12 14 16 2 10 12 14 16 LEMONS (Milions of pounds) LEMONS (Millions of pounds) Candonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of Suppose that Candonia 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 lemons and million pounds of sugar. SUGAR (Milions of pounds) SUGAR (Milions of pounds)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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