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 Candonia and Sylvania. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) 32 28 24 16 12 8 4 0 0 PPF 4 Candonia 12 16 20 24 GRAIN (Millions of pounds) 28 32 (?) TEA (Millions of pounds) 32 28 24 20 16 12 8 4 0 0 PPF 4 I Sylvania 8 12 16 20 24 GRAIN (Millions of pounds) 28 32 ? Candonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the Suppose that Candonia and Sylvania 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 tea and million pounds of grain. Suppose that Candonia and Sylvania 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 grain for 12 million pounds of tea. This ratio of goods is known as the price of trade between Candonia and Sylvania. The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes.
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 Candonia and Sylvania. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) 32 28 24 16 12 8 4 0 0 PPF 4 Candonia 12 16 20 24 GRAIN (Millions of pounds) 28 32 (?) TEA (Millions of pounds) 32 28 24 20 16 12 8 4 0 0 PPF 4 I Sylvania 8 12 16 20 24 GRAIN (Millions of pounds) 28 32 ? Candonia has a comparative advantage in the production of production of , while Sylvania has a comparative advantage in the Suppose that Candonia and Sylvania 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 tea and million pounds of grain. Suppose that Candonia and Sylvania 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 grain for 12 million pounds of tea. This ratio of goods is known as the price of trade between Candonia and Sylvania. The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes.
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 Candonia and Sylvania. Both countries produce grain and tea, each initially
(i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the
letter A.
TEA (Millions of pounds)
grain.
32
28
24
20
16
12
PPF
4
Candonia
A
8 12 16 20 24
GRAIN (Millions of pounds)
28 32
?
TEA (Millions of pounds)
32
28
24
20
16
12
B
0
0
PPF
Sylvania
8 12 16 20 24
GRAIN (Millions of pounds)
28 32
?
Candonia has a comparative advantage in the production of
, while Sylvania has a comparative advantage in the
production of
▼. Suppose that Candonia and Sylvania 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 tea and
million pounds of
Suppose that Candonia and Sylvania 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 grain for 12 million pounds of tea. This ratio of goods is known as the price of
trade between Candonia and Sylvania.
The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the
graph to indicate Candonia's consumption after trade.
Note: Dashed drop lines will automatically extend to both axes.
Transcribed Image Text:The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the
graph to indicate Candonia's consumption after trade.
Note: Dashed drop lines will automatically extend to both axes.
TEA (Millions of pounds)
32
28
24
20
16
2
8
TEA (Millions of pounds)
32
29
24
20
PPF
12
PPF
As you did for Candonia, place a black point (plus symbol) on the following graph to indicate Sylvania's consumption after trade.
?
8
True
Candonia
False
12
20
16
GRAIN (Millions of pounds)
24
Sylvania
28
32
12 16 20 24 28 32
GRAIN (Millions of pounds)
Consumption After Trade
?
Consumption After Trade
True or False: Without engaging in international trade, Candonia and Sylvania 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.)
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