3. Specialization and trade A country may specialize in producing a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Freedonia and Sylvania. Both countries produce potatoes and sugar, each initially (that is, before specialization and trade) producing 18 million kilograms of potatoes and 9 million kilograms of sugar, as indicated by the grey stars marked with the letter A. Freedonia Sylvania 48 48 42 42 36 36 PPC 30 30 24 24 SUGAR (Millions of kilograms) SUGAR (Millions of kilograms) 18 18 PPC 12 12 48 6 12 18 24 30 36 42 48 0 6 12 18 24 30 36 42 POTATOES (Millions of kilograms) POTATOES (Millions of kilograms)Freedonia has a comparative advantage in producing , while Sylvania has a comparative advantage in producing . Suppose that Freedonia and Sylvania specialize in producing the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of million kilograms of potatoes and million kilograms of sugar. Suppose that Freedonia and Sylvania 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 18 million kilograms of potatoes for 18 million kilograms of sugar. This ratio of goods is known as the terms of trade between Freedonia and Sylvania. The following graph shows the same PPC 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 -+ Consumption After Trade 36 kilograms) 30Aplia Homework: International Trade Note: Dashed drop lines will automatically extend to both axes. Freedonia 48 -+ 42 Consumption After Trade 36 30 24 SUGAR (Millions of kilograms) 18 PPC 12 42 48 6 12 18 24 30 36 POTATOES (Millions of kilograms) The following graph shows the same PPC for Sylvania as before, as well as its initial consumption at point A.Sylvania 48 -+ 42 Consumption After Trade 36 PPC 30 SUGAR (Millions of kilograms) 24 18 12 12 18 24 30 36 42 48 POTATOES (Millions of kilograms) True or False: Without engaging in international trade, Freedonia and Sylvania would not have been able to consume at the after-trade consumption bundles. (Hint: In answering this question, you may wish to refer to your previous answers.) O True O False