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 Freedonia and Sylvania. 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. Freedonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 tea and million pounds of grain. Suppose that Freedonia 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 24 million pounds of grain for 24 million pounds of tea. This ratio of goods is sometimes referred to as the terms of trade between two countries. In this case the two countries are Freedonia and Sylvania.Freedonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 tea and million pounds of grain. Suppose that Freedonia 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 24 million pounds of grain for 24 million pounds of tea. This ratio of goods is sometimes referred to as the terms of trade between two countries. In this case the two countries are Freedonia and Sylvania. The following graph shows the same PPC for Sylvania as before, as well as its initial consumption at point A. True or False: Without engaging in international trade, Freedonia 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.)
A country may specialize in the production of a good that it can produce at a lower
Freedonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 tea and million pounds of grain. Suppose that Freedonia 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 24 million pounds of grain for 24 million pounds of tea. This ratio of goods is sometimes referred to as the terms of trade between two countries. In this case the two countries are Freedonia and Sylvania.Freedonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 tea and million pounds of grain. Suppose that Freedonia 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 24 million pounds of grain for 24 million pounds of tea. This ratio of goods is sometimes referred to as the terms of trade between two countries. In this case the two countries are Freedonia and Sylvania.
The following graph shows the same PPC for Sylvania as before, as well as its initial consumption at point A.
True or False: Without engaging in international trade, Freedonia 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.)
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