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 Freedonia and Desonia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) tea. 16 14 12 10 8 6 2 0 0 PPF 2 Freedonia Þ 4 6 8 10 12 GRAIN (Millions of pounds) 14 16 ? TEA (Millions of pounds) 16 14 Note: Dashed drop lines will automatically extend to both axes. 12 10 6 2 0 0 PPF I 2 Desonia 4 6 8 10 12 GRAIN (Millions of pounds) 7 Freedonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of ▼. Suppose that Freedonia and Desonia 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 grain and million pounds of 14 16 ? 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. The countries decide to exchange 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Desonia. 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 the graph to indicate Freedonia's 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 Freedonia and Desonia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of tea, as indicated by the grey stars marked with the letter A. TEA (Millions of pounds) tea. 16 14 12 10 8 6 2 0 0 PPF 2 Freedonia Þ 4 6 8 10 12 GRAIN (Millions of pounds) 14 16 ? TEA (Millions of pounds) 16 14 Note: Dashed drop lines will automatically extend to both axes. 12 10 6 2 0 0 PPF I 2 Desonia 4 6 8 10 12 GRAIN (Millions of pounds) 7 Freedonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of ▼. Suppose that Freedonia and Desonia 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 grain and million pounds of 14 16 ? 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. The countries decide to exchange 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Desonia. 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 the graph to indicate Freedonia's 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 Freedonia and Desonia. Both countries produce grain and tea, each initially
(i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of tea, as indicated by the grey stars marked with the
letter A.
TEA (Millions of pounds)
tea.
16
14
12
10
8
6
2
0
0
PPF
2
Freedonia
Þ
4 6 8 10 12
GRAIN (Millions of pounds)
14 16
?
TEA (Millions of pounds)
16
14
Note: Dashed drop lines will automatically extend to both axes.
12
10
6
2
0
0
PPF
I
2
Desonia
4 6 8 10 12
GRAIN (Millions of pounds)
7
Freedonia has a comparative advantage in the production of
while Desonia has a comparative advantage in the
production of
▼. Suppose that Freedonia and Desonia 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 grain and
million pounds of
14 16
?
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. The countries decide to exchange 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the price of
trade between Freedonia and Desonia.
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 the
graph to indicate Freedonia's consumption after trade.
Transcribed Image Text:Note: Dashed drop lines will automatically extend to both axes.
TEA (Milions of pounds)
16
14
TEA (Milions of pounds)
N
2
0
16
D
14
PPF
10
2
12 PPF
4
Freedonia
The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A.
O True
O False
10
GRAIN (Millions of pounds)
As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade.
12 14
Desonia
16
10
GRAIN (Millions of pounds)
12
Consumption After Trade
16
@
Consumption After Trade
True or False: Without engaging in international trade, Freedonia and Desonia would 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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