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4. Specialization and trade When a country has a comparetive 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 Sylvania. Both countries produce potatoes and coffee, each initially (i.e., before specialization and trade) producing marked with the letter A 24 million pounds of potatoes and 12 million pounds of coffee, as indiceted by the grey stars Freedonia Sylvania 64 64 56 40 꾜 32 u24 ppF24, 12 24 16 1624 22 404ヨ5604 POTATOES (Milions of pounds) 1624꾜 5644 POTATOES (Mitions of pounds)
Freedonia has a comparative advantage in the production of production of comparative advantage. After specialization, the two countries can produce a total of potatoes. , while Sylvania has a comparative advantage in the . Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a million pounds of coffee and million pounds of Suppose that Freedonia and Syivania 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 16 millin pounds of potatoes for 16 million pounds of coffee. This ratio of goods is known as the price of trade between Freedonia and Sylvania. The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black point graph to indicate Freedonias consumption after trade. (plus symbol) on the Note: Dashed drop lines will automatically extend to both axes.
same PPF for Freedonia as before, as well as its initial consumption at paint A. Ptace a black point (plus symbol) on the graph to indicate Freedonias consumption after trade Note: Dashed drop lines will automatically extend to both axes. Freedonia Consumgtion After Trade PPF 32 24 24 56 POTATOES (Millions of pounds) 0 The following graph shows the same PPF for Sylvania as before, as well as its initial consumption at point A
9i8e13BN-97813 The following graph shows the same PPF for Sylvania as before, as well as its initial consumption at point A. As you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Sytvanias consumption after trade. Sylvania 64 Consumption Adter Trade 40 15 POTATOES (Milions of pounds) engaging in international trade, Freedoria and Sylvania would not have been able to consume at the after-trade consumption True or Faise: Without bundles. (Hint: Base this question on the answers you previously entered on this page.) True
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