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 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 Maldonia and Sylvania. Both countries produce potatoes and tea, eachinitially (i.e., before specialization and trade) producing 18 million pounds of potatoes and 9 million pounds of tea, as indicated by the grey starsmarked with the letter A.MaldoniaSylvania484842423636PPF30242418PPF1812126.6.121824303642486.12182430364248POTATOES (Millions of pounds)POTATOES (Millions of pounds)TEA (Millions of pounds)TEA (Millions of pounds) Maldonia has a comparative advantage in the production of, while Sylvania has a comparative advantage in theproduction ofSuppose that Maldonia and Sylvania 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 potatoes andmillion poundsof tea.Suppose that Maldonia and Sylvania agree to trade. Each country focuses its resources on producing only the good in which it hascomparativeadvantage. The countries decide to exchange 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price oftrade between Maldonia and Sylvania.

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Maldonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Maldonia 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 potatoes and million pounds of tea. Suppose that Maldonia 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 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price of trade between Maldonia and Sylvania.

Maldonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Maldonia 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 potatoes and million pounds of tea. Suppose that Maldonia 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 12 million pounds of potatoes for 12 million pounds of tea. This ratio of goods is known as the price of trade between Maldonia and Sylvania.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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