When a country has a comparative advantage in the production of a good, it means that...
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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 Freedonia and Desonia. Both countries produce grain and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. Freedonia Desonia 32 32 28 28 24 PPF 24 20 20 16 16 12 PPF 12 8 4. 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) GRAIN (Millions of pounds) COFFEE (Millions of pounds) COFFEE (Millions of pounds) Freedonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Freedonia and Desonia 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 coffee and million pounds of grain. Suppose that Freedonia and Desonia 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 12 million pounds of grain for 12 million pounds of coffee. This ratio of goods is known as the price of trade between Freedonia and Desonia. The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. Freedonia 32 28 Consumption After Trade 24 PPF 20 16 12 8 4 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. COFFEE (Millions of pounds) 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 12 PPF 8 4 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) COFFEE (Millions of pounds) True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) True O False Grade It Now Save & Continue Continue without saving 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 grain and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. Freedonia Desonia 32 32 28 28 24 PPF 24 20 20 16 16 12 PPF 12 8 4. 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) GRAIN (Millions of pounds) COFFEE (Millions of pounds) COFFEE (Millions of pounds) Freedonia has a comparative advantage in the production of , while Desonia has a comparative advantage in the production of Suppose that Freedonia and Desonia 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 coffee and million pounds of grain. Suppose that Freedonia and Desonia 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 12 million pounds of grain for 12 million pounds of coffee. This ratio of goods is known as the price of trade between Freedonia and Desonia. The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. Freedonia 32 28 Consumption After Trade 24 PPF 20 16 12 8 4 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. COFFEE (Millions of pounds) 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 12 PPF 8 4 4 8 12 16 20 24 28 32 GRAIN (Millions of pounds) COFFEE (Millions of pounds) True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) True O False Grade It Now Save & Continue Continue without saving
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Coffee Grain Freedonia 24 16 Desonia 12 24 Opportunity Cost 1 pound of Coff... View the full answer
Related Book For
International Business and the New Realities
ISBN: 978-0136090984
2nd Edition
Authors: S. Tamer Cavusgil, Gary Knight, John R. Riesenberger
Posted Date:
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