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 Desonia. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. Candonia Desonia 32 28 24 PPF 20 TEAMions of pounds) TEAons of pounds a 12 12 PPF 2 DO - 4 12 + 12 11 10 24 20 GRAN Mions of pounds 24 12 15 20 GRAN Mons of pounds Candonia has a comparative advantage in the production of while Desonia has a comparative advantage in the production of Suppose that Candonia 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 tea and million pounds of grain. Suppose that Candonia 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 4 million pounds of grain for 4 million pounds of tea. This ratio of goods is known as the price of trade between Candonia and Desonia. The following graph shows the same PPF for Candonid as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Candonia's consumption after trade. ho Note: Dashed drop lines will automatically extend to both axes Candonia 32 + 24 Consumption After Trade PPF 20 Milions of pounds 3 Candonia 32 + 28 Consumption After Trade 24 PPF 20 TE A Millions of pounds) 18 12 0 28 32 8 12 20 24 GRAIN (Millions of pounds) The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. As you did for Candonis, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. Desonia 32 28 Consumption After Trade 24 TE A Millions of pounds) 20 16 12 PPF 8 0 20 8 12 20 24 GRAIN (Milions of pounds) True or Falce: Without engaging in international trade, Candonia 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 False