Maldonia has a comparative advantage in the production of, while Sylvania has a comparative advantage in theproduction ofIf each fulpes only the good for which each has a comparativelemonsadvantage), the most the two countries can produce iss andmillon pounds of coffee.coffeeSuppose that Maldonia and Sylvanla specialize and open uphe terms of trade in the world market are 1 pound of lemonsneither lemons nor coffeefor 1 pound of coffee. That is, Maldonia is willing to sell Sylvkchange for 1 pound of coffee, and Sylvania is willing to sellMaldonia 1 pound of coffee in exchange for 1 pound of lemo both lemons and coffee exchange 12 million pounds of lemons for 12 million pounds of When a country speciallizes in the production of a good, this means that it can produce this good at a lower opportunity cost than Its trading partner.Because of this comparative advantage, both countries benefit when they specialize and trade with each other.The following graphs show the production possibilitles frontlers (PPFS) for Maldonia and Sylvanla. Both countries produce lemons and coffee, eachInitlally (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as Indicated by grey points(star symbols) labeled point A.MaldoniaSylvania484842423636PPF3030242418PPF181212612182430364248121824 30364248LEMONS (Milions of pounds)LEMONS (Millions of pounds)Maldonia has a comparative advantage in the production ofwhile Sylvania has a comparative advantage in the. If each fully specializes (that is, produces only the good for which each has a comparativeproduction ofadvantage), the most the two countries can produce ismillion pounds of lemons and|million pounds of coffee.Suppose that Maldonia and Sylvanla specialize and open up to International trade, and the terms of trade in the world market are 1 pound of lemonsfor 1 pound of coffee. That is, Maldonia is willing to sell Sylvania 1 pound of lemons in exchange for 1 pound of coffee, and Sylvanla is willing to sellMaldonia 1 pound of coffee in exchange for 1 pound of lemons. The countries decide to exchange 12 million pounds of lemons for 12 millon pounds ofcoffee.COFFEE (Milions of pounds)COFFEE (Millions of pounds)

If we tabulate the given graph then we get Lemons (millions of pounds) Coffee (millions of…

Because of this comparative advantage, both countries benefit when they speciallze and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Sylvania. Both countries produce lemons and coffee, each Initially (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as indicated by grey points (star symbols) labeled point A. Maldonia Sylvania 48 48 42 42 36 36 PPF 30 30 24 24 18 PPF 18 12 6 12 18 24 30 42 LEMONS (Milions of pounds) 48 12 18 24 30 34 42 48 LEMONS (Millions of pounds) Maidonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the . If each fully specializes (that is, produces only the good for which each has a comparative production of advantage), the most the two countries can produce is million pounds of lemons and |million pounds of coffee. COFFEE (Milions of pounds) COFFEE (Milions of pounds)

Because of this comparative advantage, both countries benefit when they speciallze and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Sylvania. Both countries produce lemons and coffee, each Initially (that is, before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as indicated by grey points (star symbols) labeled point A. Maldonia Sylvania 48 48 42 42 36 36 PPF 30 30 24 24 18 PPF 18 12 6 12 18 24 30 42 LEMONS (Milions of pounds) 48 12 18 24 30 34 42 48 LEMONS (Millions of pounds) Maidonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the . If each fully specializes (that is, produces only the good for which each has a comparative production of advantage), the most the two countries can produce is million pounds of lemons and |million pounds of coffee. COFFEE (Milions of pounds) COFFEE (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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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 Freedonia and Lamponia. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of potatoes and 3 million pounds of tea, as indicated by the grey stars marked with the letter A. Suppose that Freedonia and Lamponia 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 2 million pounds of potatoes for 2 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Lamponia. The following graph shows the same PPF for Freedonia as before, as well as its…
Maldonia and lamponias consumption after trade on the graph!
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