Question

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 Candonia and Lamponia. Both countries produce lemons and tea, each initially (i.e., before specialization and trade) producing 6 million pounds of lemons and 3 million pounds of tea, as indicated by the grey stars marked with the letter A.

Candonia Lamponia 16 14 14 12 PPF 10 10 PF ト4 ト4 8 10 1214 16 6 8 101214 16 LEMONS (Millions of pounds) LEMONS (Millions of pounds)

Candonia has a comparative advantage in the production of TEA/LEMONS/NEITHER/BOTH , while Lamponia has a comparative advantage in the production of TEA/LEMONS/NEITHER/BOTH . Suppose that Candonia and Lamponia 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___?____million pounds of tea.

Suppose that Candonia and Lamponia 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 tea. This ratio of goods is known as the terms of trade between Candonia and Lamponia.

The following graph shows the same PPF for Candonia as before, as well as its initial consumption at point A. Place a black point (+ symbol) on the graph to indicate Candonia's consumption after trade.

Note: Dashed drop lines will automatically extend to both axes.

The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A.

As you did for Candonia, place a black point (+ symbol) on the following graph to indicate Lamponia's consumption after trade.

True or False: Without engaging in international trade, Candonia and Lamponia 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.)

PLEASE SHOW WHERE THE POINT GOES ON EACH GRAPH. THANK YOU

Answer 1

A country will have a comparative advantage in the good , whose opportunity cost will be lower , & this opportunity cost is slope of PPF

Thus opportunity cost of production of lemons interms of Tea

For Candonia, slope of PPF , : 6/12 = .5

For lamponia , ppf slope : 12/8 = 1.5

Thus Candonia has comparative advantage in Lemons

Lamponia has a comparative advantage in the production of Tea

after Specialization, total Lemons = 12, & and 12 million pounds of tea.

Terms of trade , 4 Lemon = 4tea

So now after trade , nation C can trade 6 million Lemon for 6 million tea ., Thus new consumption is (Lemon , Tea) = (6,6)

for nation L:

New consumption point : (6,6)

null

False, free trade expands the consumption horizon , so both nations won't be able to consume the after trade point in autarky.

Bcoz two points ( trade points) lie out side the PPF