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 Glacier and Congaree. Both countries produce peas and lentils, each initially (i.e., before specialization and trade) producing 6 million pounds of peas and 3 million pounds of lentils, as indicated by the grey stars marked with the letter A. 16 14 12 10 Glacier 10 12 PEAS (Millions of pounds) o 16 14 12 10 8 14 16 Congaree 10 12 PEAS (Millions of pounds) 14 16 Glacier has a comparative advantage in the production of , while Congaree has a comparative advantage in the production of Suppose that Glacier and Congaree specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of peas. million pounds of lentils and million pounds of Suppose that Glacier and Congaree 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 peas for 4 million pounds of lentils. This ratio of goods is known as the price of trade between Glacier and Congaree. The following graph shows the same PPF for Glacier as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Glacier's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. o 16 14 12 10 Glacier ppF 10 12 PEAS (Millions of pounds) 14 Consumption After Trade 16 The following graph shows the same PPF for Congaree as before, as well as its initial consumption at point A. As you did for Glacier, place a black point (plus symbol) on the following graph to indicate Congaree's consumption after trade. o o Congaree 16 14 12 10 8 10 12 PEAS (Millions of pounds) 14 Consumption After Trade 16 True or False: Without engaging in international trade, Glacier and Congaree 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