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 Eower 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 lemons and tea, each initially (Le.r before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. Freedonia Lamponia 32 32 28 23 A 24 PPF A 24 In In 1: 1: I: I: 3 20 3 20 D. D. E \"5 m 16 m 16 I: l: i2 2 \fHomework (Ch 03) LEMONS (Millions of pounds) LEMONS {Millions of pounds) Freedonia has a comparative advantage in the production of V , while Lamponia has a comparative advantage in the production of V . Suppose that Freedonia and Lamponia specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total MC] million pounds of tea and C] million pounds of lemons. Suppose that Freedonia and Lamponia 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 4 million pounds of lemons for 4 million pounds of tea. This ratio of goods is known as the price of trade between Freedonia and Lamponia. The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black paint ( plus symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. . Homework (Ch 03) 28 Consumption After Trade 24 20 16 12 PPF TEA (Millions of pounds} 0 4 8 12 16 20 24 28 32 LEMONS (Millions of pounds) True or False: Without engaging in international trade, Freedonia and Lamporlia would have been able to consume at the after-trade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) 0 True 0 False