4. Specialization and trade

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 Freedonia and Desonia. Both countries produce potatoes and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A.

Freedonia 32 28 Consumption After Trade 24 PPF 20 16 COFFEE (Millions of pounds) 12 8 A 4 8 12 16 20 24 28 32 POTATOES (Millions of pounds)? Freedonia Desonia 32 32 28 28 24 PPF 24 20 20 16 18 COFFEE (Millions of pounds) COFFEE (Millions of pounds) 12 12 PPF CO A A A 0 4 12 16 20 24 28 32 4 12 16 20 24 28 32 POTATOES (Millions of pounds) POTATOES (Millions of pounds)The following graph shows the same PPF for Desonia 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 Desonia's consumption after trade. Desonia 32 28 Consumption After Trade 24 20 COFFEE (Millions of pounds) 16 12 PPF A 4 0 0 4 12 16 20 24 28 32 POTATOES (Millions of pounds)