Suppose that Freedonia and Desonia agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. Freedonia has a comparative advantage in the production of tea. The countries decide to exchange 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the terms of trade between Freedonia and Desonia. The following graph shows the PPF for Freedonia, as well as its initial consumption at point A. Place a black point (cross symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. TEA (Millions of pounds) 32 24 PPF 28 20 16 4 12 0 0 4 8 A Freedonia 12 16 20 GRAIN (Millions of pounds) After trade, Freedonia consumes 4 24 28 32 Consumption After Trade million pounds of grain as well as 4 (?) million pounds of tea.

Suppose that Freedonia and Desonia agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. Freedonia has a comparative advantage in the production of tea. The countries decide to exchange 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the terms of trade between Freedonia and Desonia. The following graph shows the PPF for Freedonia, as well as its initial consumption at point A. Place a black point (cross symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. TEA (Millions of pounds) 32 24 PPF 28 20 16 4 12 0 0 4 8 A Freedonia 12 16 20 GRAIN (Millions of pounds) After trade, Freedonia consumes 4 24 28 32 Consumption After Trade million pounds of grain as well as 4 (?) million pounds of tea.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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