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 Sylvania. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 0 PPF 1 Freedonia 24, 12 8 16 24 32 40 48 LEMONS (Millions of pounds) 56 64 (?) SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 PPF 0 8 Sylvania A 16 24 32 40 48 56 64 LEMONS (Millions of pounds) (?) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 lemons and sugar. million pounds of Suppose that Freedonia 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 8 million pounds of lemons for 8 million pounds of sugar. This ratio of goods is known as the terms of trade between Freedonia and Sylvania.
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 Sylvania. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 0 PPF 1 Freedonia 24, 12 8 16 24 32 40 48 LEMONS (Millions of pounds) 56 64 (?) SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 PPF 0 8 Sylvania A 16 24 32 40 48 56 64 LEMONS (Millions of pounds) (?) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of . Suppose that Freedonia 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 lemons and sugar. million pounds of Suppose that Freedonia 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 8 million pounds of lemons for 8 million pounds of sugar. This ratio of goods is known as the terms of trade between Freedonia and Sylvania.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
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 The following graph shows the same PPF for Sylvania as before, as well as its initial consumption at point A.
graph to indicate Freedonia's consumption after trade.
Note: Dashed drop lines will automatically extend to both axes.
SUGAR (Millions of pounds)
64
56
48
40
24 PPF
16
8
0
0
8
Freedonia
16
24
32
40
LEMONS (Millions of pounds)
48
56
64
Consumption After Trade
As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Sylvania's consumption after trade.
SUGAR (Millions of pounds)
64
56
48
8
0
0
PPF
O True
8
O False
16
Sylvania
24
32
40
LEMONS (Millions of pounds)
48
64
Consumption After Trade
True or False: Without engaging in international trade, Freedonia and Sylvania 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.)
(?)
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 Sylvania. Both countries produce lemons and sugar, each
initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars
marked with the letter A.
SUGAR (Millions of pounds)
64
56
48
40
32
24
16
8
0
0
PPF
1
Freedonia
24, 12
8 16 24 32 40 48
LEMONS (Millions of pounds)
56
64
(?)
SUGAR (Millions of pounds)
64
56
48
40
32
24
16
8
0
PPF
0 8
Sylvania
A
16 24 32 40 48 56 64
LEMONS (Millions of pounds)
(?)
Freedonia has a comparative advantage in the production of
while Sylvania has a comparative advantage in the
production of
. Suppose that Freedonia 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 lemons and
sugar.
million pounds of
Suppose that Freedonia 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 8 million pounds of lemons for 8 million pounds of sugar. This ratio of goods is known as the terms of
trade between Freedonia and Sylvania.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education