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 countries produce corn and basil, each initiall (i.e., before specialization and trade) producing 6 million pounds of corn and 3 million pounds of basil, as indicated by the grey stars marked with the letter A. BASIL (Millions of pounds) BASIL (Millions of pounds) 16 14 12 10 16 8 14 2 12 0 10 2 0 PPF 02 0 Shenandoah PPF I 12 4 6 8 10 CORN (Millions of pounds) 2 4 Shenandoah has a comparative advantage in the production of production of Suppose that Shenandoah and Rainier specialize comparative advantage. After specialization, the two countries can produce a total of basil. I 1 14 16 Shenandoah A Suppose that Shenandoah and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of trade between Shenandoah and Rainier. 6 8 10 CORN (Millions of pounds) ? 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. 12 BASIL (Millions of pounds) 14 16 14 16 12 10 2 0 0 PPF 2 1 4 6 8 10 12 CORN (Millions of pounds) Rainier , while Rainier has a comparative advantage in the in the production of the goods in which each has a million pounds of corn and million pounds of 14 16 Consumption After Trade ? (?
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 countries produce corn and basil, each initiall (i.e., before specialization and trade) producing 6 million pounds of corn and 3 million pounds of basil, as indicated by the grey stars marked with the letter A. BASIL (Millions of pounds) BASIL (Millions of pounds) 16 14 12 10 16 8 14 2 12 0 10 2 0 PPF 02 0 Shenandoah PPF I 12 4 6 8 10 CORN (Millions of pounds) 2 4 Shenandoah has a comparative advantage in the production of production of Suppose that Shenandoah and Rainier specialize comparative advantage. After specialization, the two countries can produce a total of basil. I 1 14 16 Shenandoah A Suppose that Shenandoah and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of trade between Shenandoah and Rainier. 6 8 10 CORN (Millions of pounds) ? 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. 12 BASIL (Millions of pounds) 14 16 14 16 12 10 2 0 0 PPF 2 1 4 6 8 10 12 CORN (Millions of pounds) Rainier , while Rainier has a comparative advantage in the in the production of the goods in which each has a million pounds of corn and million pounds of 14 16 Consumption After Trade ? (?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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 countries produce corn and basil, each initially
(i.e., before specialization and trade) producing 6 million pounds of corn and 3 million pounds of basil, as indicated by the grey stars marked with the
letter A.
BASIL (Millions of pounds)
BASIL (Millions of pounds)
16
0
16
0
14
PPF
12
2
Shenandoah
4
10
12
CORN (Millions of pounds)
PPF
2
6
Note: Dashed drop lines will automatically extend to both axes.
4
14
16
Shenandoah has a comparative advantage in the production of
production of
. Suppose that Shenandoah and Rainier specialize
comparative advantage. After specialization, the two countries can produce a total of
basil.
Shenandoah
6
10
CORN (Millions of pounds)
?
12
BASIL (Millions of pounds)
14
16
Suppose that Shenandoah and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of
trade between Shenandoah
Rainier.
14
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.
16
0
PPF
2
6
8
10 12
CORN (Millions of pounds)
Rainier
14
Consumption After Trade
16
while Rainier has a comparative advantage in the
in the production of the goods in which each has a
million pounds of corn and
million pounds of
(?)
(?)
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