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When a country specializes in the production of a good, this means that it can produce this good a a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other.

When a country specializes in the production of a good, this means that it can produce this good a a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Desonia. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. COFFEE (Millions of pounds) 32 28 24 20 16 12 8 0 0 PPF 4 12 16 20 LEMONS (Millions of pounds) Freedonia 8 24 28 32 ? COFFEE (Millions of pounds) 32 28 24 20 16 2000 0 PPF Desonia 4 8 12 16 20 LEMONS (Millions of pounds) 24 28 32 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 coffee and million pounds of lemons. Note: Dashed drop lines will automatically extend to both axes. ? 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 lemons for 4 million pounds of coffee. This ratio of goods is known as the terms 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:When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Desonia. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. COFFEE (Millions of pounds) 32 28 24 20 16 12 8 0 0 PPF 4 12 16 20 LEMONS (Millions of pounds) Freedonia 8 24 28 32 ? COFFEE (Millions of pounds) 32 28 24 20 16 2000 0 PPF Desonia 4 8 12 16 20 LEMONS (Millions of pounds) 24 28 32 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 coffee and million pounds of lemons. Note: Dashed drop lines will automatically extend to both axes. ? 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 lemons for 4 million pounds of coffee. This ratio of goods is known as the terms 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. (?)
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. Note: Dashed drop lines will automatically extend to both axes. 32 28 24 20 16 12 0 32 28 24 20 16 12 8 0 4 0 PPF 4 The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. 0 As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. PPF Freedonia 8 12 16 LEMONS (Millions of pounds) 1 4 20 True False Desonia 8 12 16 LEMONS (Millions of pounds) 24 28 20 32 24 28 + Consumption After Trade 32 (?) *+ Consumption After Trade (?) True or False: Without engaging in international trade, Freedonia and Desonia 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.)
Transcribed Image Text: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. Note: Dashed drop lines will automatically extend to both axes. 32 28 24 20 16 12 0 32 28 24 20 16 12 8 0 4 0 PPF 4 The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. 0 As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. PPF Freedonia 8 12 16 LEMONS (Millions of pounds) 1 4 20 True False Desonia 8 12 16 LEMONS (Millions of pounds) 24 28 20 32 24 28 + Consumption After Trade 32 (?) *+ Consumption After Trade (?) True or False: Without engaging in international trade, Freedonia and Desonia 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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