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

? Freedonia Lamponia 64 64 T 56 56 COFFEE (Millions of pounds) 48 48 PPF 40 40 32 32 24 PPF 24 16 16 A COFFEE (Millions of pounds) 8 8 0 0 8 16 24 32 40 48 56 64 0 8 16 24 32 40 48 56 64 0 POTATOES (Millions of pounds) POTATOES (Millions of pounds)Freedonia 64 56 Consumption After Trade COFFEE (Millions of pounds) 48 40 32 24 PPF 16 A Co 0 8 16 24 32 40 48 56 64 POTATOES (Millions of pounds) The following graph shows the same PPF for Lamponia 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 Lamponia's consumption after trade. Lamponia 64 56 Consumption After Trade 48 COFFEE (Millions of pounds) PPF 40 32 24 16 A CO 0 8 16 24 32 40 48 56 64 POTATOES (Millions of pounds)