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 Freedonia and Desonia. Both countries produce potatoes and coffee, eachinitially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of coffee, as indicated by the grey starsmarked with the letter A.COFFEE (Millions of pounds)3228243220281624820016120Freedonia has a comparative advantage in the production ofproduction ofcomparativepotatoes.0Suppose thatadvantage. Thtrade betwee both potatoes and coffeePPFFreedonia4 8 12 16 20 24POTATOES (Millions of pounds)Note: Dashed drop lines will automatically extend to both axes.potatoesPPF28(?)FreedoniaCOFFEE (Millions of pounds)322824201612840The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on thegraph to indicate Freedonia's consumption after trade.0PPF48 12 16 20 24POTATOES (Milions of pounds)coffeeto trade. Each country focuses its resources on producing only the good in which it has a comparativeneither potatoes nor coffee to trade. Each country focusese 4 million pounds of potatoes for 4 million pounds of coffee. This ratio of goods is known as the price ofDesoniawhile Desonia has a comparative advantage in theSuppose that Freedonia and Desonia specialize in the production of the goods in which each has athe two countries can produce a total ofmillion pounds of coffee andmillion pounds of+32Consumption After Trade(?)(?) Note: Dashed drop lines will automatically extend to both axes.32282420161240322824201612080PPFThe following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A.0As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade.4PPFO TrueO False812162024POTATOES (Millions of pounds)4Freedonia828Desonia12162024POTATOES (Millions of pounds)3228++Consumption After Trade32(?)*Consumption After TradeTrue or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumptionbundles. (Hint: Base this question on the answers you previously entered on this page.)(?)

Comparative advantage refers to the ability to produce goods and services at a lower opportunity…

Note: Dashed drop lines will automatically extend to both axes. 32 28 24 20 16 12 4 0 32 28 24 20 16 12 0 8 0 PPF The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. 0 As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. (?) 4 PPF O True O False 8 12 16 20 24 POTATOES (Millions of pounds) 4 Freedonia 8 28 Desonia 12 16 20 24 POTATOES (Millions of pounds) 32 28 ++ Consumption After Trade 32 (?) * Consumption After Trade True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.)

Note: Dashed drop lines will automatically extend to both axes. 32 28 24 20 16 12 4 0 32 28 24 20 16 12 0 8 0 PPF The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. 0 As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. (?) 4 PPF O True O False 8 12 16 20 24 POTATOES (Millions of pounds) 4 Freedonia 8 28 Desonia 12 16 20 24 POTATOES (Millions of pounds) 32 28 ++ Consumption After Trade 32 (?) * Consumption After Trade True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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