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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 Maldonia and Lamponia. Both countries produce potatoes and sugar, each initially (e., before specialization and trade) producing 6 million pounds of potatoes and 3 million pounds of sugar, as indicated by the grey stars marked with the letter A. Maldonia Lamponia (spunod jo suomavons 3 P 00 PPP 14 2 4 . . 30 12 POTATOES (Millions of pounds) 10 SUGAR (Millions of pounds) B 12 30 O 0 PPF 2 4. . 10 12 M POTATOES (Mons of pounds) 1
Maldonia has a comparative advantage in the production of while Lamponia has a comparative advantage in the Suppose that Maldonia and Lamponie 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 potatoes and million pounds production of of sugar. Suppose that Maldonia 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 2 million pounds of potatoes for 2 million pounds of sugar. This ratio of goods is known as the price of trade between Maldonia and Lamponia The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A Place a black point (plus symbol) on the graph to indicate Maldonia's consumption after trade Note: Dashed drop lines will automatically extend to both axes Maldonia
nd Study Tools tions ccess Tips OR YOU back for seve Note: Deshed drop lines will automatically extend to both axes. Maldonia U SUGAR (Millions of pounds) ppp 10 1 POTATOES (Millions of pounds) The following graph shows the same PPF for Lamponia as before
As you did for Haldonia, place a black point (plus symbol) on the following graph to indicate Lamponia's consumption after trade ools Lamponla Consumption After Trade 12 PPF 10 10 4 10 12 14 16 POTATOES (Millions of pounds) True or False: Without engaging in international trade, Maldonia 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.) SUGAR (Millions of pounds)
4 10 12 14 POTATOES (Misions of pounds) True or False: Without engaging in international trade, Maldonia 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.) O True O False Grade It Now Save & Continue