6 Freedonia has a comparative advantage in the production of, while Lamponia has a comparative advantage in theproduction ofSuppose that Freedonia and Lamponia 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 sugar andmillion pounds ofpotatoes.Suppose that Freedonia and Lamponia agree to trade. Each country focuses its resources on producing only the good in which it has a comparativeadvantage. The countries decide to exchange 12 million pounds of potatoes for 12 million pounds of sugar. This ratio of goods is known as the price oftrade between Freedonia and Lamponia.The 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.Note: Dashed drop lines will automatically extend to both axes.Freedonia4842Consumption After Trade36PPF30241812A6612182430364248SUGAR (Millions of pounds) 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 Lamponia. Both countries produce potatoes and sugar, eachinitially (i.e., before specialization and trade) producing 18 million pounds of potatoes and 9 million pounds of sugar, as indicated by the grey starsmarked with the letter A.FreedoniaLamponia4848424236PPF36303024241818PPF1212-- ----- --612182430364248612182430364248POTATOES (Millions of pounds)POTATOES (Millions of pounds)SUGAR (Millions of pounds)SUGAR (Millions of pounds)

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Description: 6 Freedonia has a comparative advantage in the production of, while Lamponia has a comparative advantage in theproduction ofSuppose that Freedonia and Lamponia specialize in the production of the goods in which each has acomparative advantage. After

A country is said to have a comparative advantage in the production of a good if the opportunity…

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reedonia nas a comparative advantage in the produc while Lamponia nas a comparative advantage in the production of Suppose that Freedonia and Lamponia 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 sugar and million pounds of potatoes. 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 12 million pounds of potatoes for 12 million pounds of sugar. This ratio of goods is known as the price of trade between Freedonia and Lamponia.

reedonia nas a comparative advantage in the produc while Lamponia nas a comparative advantage in the production of Suppose that Freedonia and Lamponia 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 sugar and million pounds of potatoes. 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 12 million pounds of potatoes for 12 million pounds of sugar. This ratio of goods is known as the price of trade between Freedonia and Lamponia.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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