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 Candonia and Sylvania. Both countries produce lemons and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of tea, as indicated by the grey stars marked with the letter A.

? Candonia 64 56 Consumption After Trade 48 PPF TEA (Millions of pounds) 40 32 24 16 A 8 0 8 16 24 32 40 48 56 64 LEMONS (Millions of pounds)Sylvania 64 56 Consumption After Trade 48 TEA (Millions of pounds) 40 32 24 PPF 16 A 0 0 8 16 24 32 40 48 56 64 LEMONS (Millions of pounds)Candonia Sylvania 64 64 56 56 TEA (Millions of pounds) 48 PPF 48 40 40 32 TEA (Millions of pounds) 32 24 24 PPF 16 16 0 O 0 8 16 24 32 40 48 56 64 0 8 16 24 32 40 48 56 64 LEMONS (Millions of pounds) LEMONS (Millions of pounds)