The following graphs show the production possibilities frontiers (PPFS) for Shenandoah and Rainier. Both countrie produce peas and basil, each initially (i.e., before specialization and trade) producing 6 million pounds of pe and 3 million pounds of basil, as indicated by the grey stars marked with the letter A. 16 14 12 10 B 2 0 PPF Shenandoah 10 12 14 16 PEAS (Millions of pounds) 16 14 12 10 8 6 4 2 0 D PPF Rainier 10 12 14 16 PEAS (Millions of pounds) Shenandoah has a comparative advantage in the productio of the production of while Rainier has a comparative advantage i Suppose that Shenandoah ar Rainier specialize in the production of the goods in which each has a comparative advantage. After specialization, th two countries can produce a total of million pound of basil and million pounds of peas. Suppose that Shenandoah and Rainier agree to trade. Each country focuses its resources on producing only the good which it has a comparative advantage. The countries decid to exchange 6 million pounds of peas for 6 million pounds basil. This ratio of goods is known as the price of trade between Shenandoah and Rainier. The following graph shows the same PPF for Shenandoah as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Shenandoah's consumption after trade.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 Shenandoah and Rainier. Both countrie
produce peas and basil, each initially (i.e., before
specialization and trade) producing 6 million pounds of pe
and 3 million pounds of basil, as indicated by the grey stars
marked with the letter A.
16
14
12
2
Shenandoah
PEAS (Millions of pounds)
14
12
8
6
2
0
PPF
Rainier
PEAS (Millions of pounds)
Shenandoah has a comparative advantage in the productio
of
the production of
while Rainier has a comparative advantage i
Suppose that Shenandoah ar
Rainier specialize in the production of the goods in which
each has a comparative advantage. After specialization, th
two countries can produce a total of
million pound
of basil and
million pounds of peas.
Suppose that Shenandoah and Rainier agree to trade. Each
country focuses its resources on producing only the good
which it has a comparative advantage. The countries decid
to exchange 6 million pounds of peas for 6 million pounds
basil. This ratio of goods is known as the price of
trade between Shenandoah and Rainier.
The following graph shows the same PPF for Shenandoah as
before, as well as its initial consumption at point A. Place a
black point (plus symbol) on the graph to indicate
Shenandoah's consumption after trade.

Note: Dashed drop lines will automatically extend to both
axes.
SIL (Millions of pounds)
16
12 PPF
BASIL (Millions of pounds)
10
4
2
0
16
14
12
10
8
2
The following graph shows the same PPF for Rainier as
before, as well as its initial consumption at point A.
0
2
As you did for Shenandoah, place a black point (plus symbo
on the following graph to indicate Rainier's consumption aft
trade.
PPF
4
O True
2
Shenandoah
8
6
10
PEAS (Millions of pounds)
4
Rainier
12
10
PEAS (Millions of pounds)
14
8
16
12 14
Consumption After Trade
16
Consumption After Trade
True or False: Without engaging in international trade,
Shenandoah and Rainier would not have been able to
consume at the after-trade consumption bundles. (Hint: B
this question on the answers you previously entered on thi
page.)

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

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