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 Freedonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. (insert graph here) Freedonia has a comparative advantage in the prodution ofwhile Sylvania has a comparative advantage in theproduction ofv. Suppose that Froedonia and Sylvania specialioe in the production of the goods in which each has acomparative advantage. Alter specialication, the two countries can produce a total ofmillion pounds of tea andmillion pounds ofpotatoes.Suppose that Freedonia and Sylvania agree to trade. Each country focuses its resources on producing anly the good in which it has a comparativeadvantage. The countries decide to exchange 8 million pounds of potatoes for 8 milion pounds of tea. This ratio of goods is known as the price oftrade between freedoria and Siylvania.The following graph shows the same PPF for Freedonia as bafare, as well as as intial consumption at paint A Place a black point (alus symbal) on theGraph to indicate Froadonia's consumptian ater trade.Note: Dashed drop lines will automatically extend to both axes.FreedorConumplion Aler Irad24 22 aPOTAIOES (Mra of pounda)The following graph shows the same PF for Sylvania as before, as well as its initial consumption at point A.As you did far Fredonia, place a black paint (plus symbal) an the following graph to indicate Sylvania's consumption ater trade.SylranaConsumplion Alar Irade402424POIAIOES (Mura of pun)True or Falke: Without engaging in international trade, Freedonia and Sylvania would have been able to consume at the after-trade corsumptionbundles. (Hint: Base this quistion on the answers you previcusly entered on this page.)O TrueO FalseIspunod o wvaTEA MEo o pounds FreedoniaSylvania6464565648PPF48404032322424PPF16168 16POTATOES (Millions of pounds)8 16POTATOES (Millions of pounds)243240485664243240485664TEA (Millions of pounds)TEA (Millions of pounds)co

Comparative Advantage in trade refers to that one country can produce one product at a lower…

Answered: Freedonia has a comparative advantage…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

_{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 Freedonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of tea, as indicated by the grey stars marked with the letter A.}

_{(insert graph here)}

Freedonia has a comparative advantage in the prodution of
while Sylvania has a comparative advantage in the
production of
v. Suppose that Froedonia and Sylvania specialioe in the production of the goods in which each has a
comparative advantage. Alter specialication, the two countries can produce a total of
million pounds of tea and
million pounds of
potatoes.
Suppose that Freedonia and Sylvania agree to trade. Each country focuses its resources on producing anly the good in which it has a comparative
advantage. The countries decide to exchange 8 million pounds of potatoes for 8 milion pounds of tea. This ratio of goods is known as the price of
trade between freedoria and Siylvania.
The following graph shows the same PPF for Freedonia as bafare, as well as as intial consumption at paint A Place a black point (alus symbal) on the
Graph to indicate Froadonia's consumptian ater trade.
Note: Dashed drop lines will automatically extend to both axes.
Freedor
Conumplion Aler Irad
24 22 a
POTAIOES (Mra of pounda)
The following graph shows the same PF for Sylvania as before, as well as its initial consumption at point A.
As you did far Fredonia, place a black paint (plus symbal) an the following graph to indicate Sylvania's consumption ater trade.
Sylrana
Consumplion Alar Irade
40
24
24
POIAIOES (Mura of pun)
True or Falke: Without engaging in international trade, Freedonia and Sylvania would have been able to consume at the after-trade corsumption
bundles. (Hint: Base this quistion on the answers you previcusly entered on this page.)
O True
O False
Ispunod o wva
TEA MEo o pounds

Freedonia
Sylvania
64
64
56
56
48
PPF
48
40
40
32
32
24
24
PPF
16
16
8 16
POTATOES (Millions of pounds)
8 16
POTATOES (Millions of pounds)
24
32
40
48
56
64
24
32
40
48
56
64
TEA (Millions of pounds)
TEA (Millions of pounds)
co

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions