Homework 03 questions
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 Sylvania. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 30 million pounds of lemons and 15 million pounds of sugar, as indicated by the grey stars marked with the letter A. Freedonia Sylvania 80 8G 70 Til E 6\" E 60 FPF : c 3 3 n 50 n so \"5 "6 m m E 40 E 40 E E *-' 30 ' H 30 II PF II E E 20 2G 3 D U] A U] A 10 10 D D 0 1|) 2|) 30 41) SD 6|) TI) 80 {l 10 20 3|] 4h 50 GD m 50 LEMONS (Millions of pounds} LEMONS [Millions of pounds.) Freedonia has a comparative advantage in the production of lemons Y , while Sylvania has a comparative advantage in the production of sugar V . Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total ME million pounds of lemons and E million pounds of sugac 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 20 million pounds of lemons for 20 million pounds of sugar. This ratio of goods is known as the price of trade between Freedonia and Sylvania. The Following graph shows the same PPF 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. Note: Dashed drop lines will automatically extend to both axes. Freedonia 80 70 Consumption After Trade 60 50 40 SUGAR (Millions of pounds) 30 PPF 20 A 10 10 20 30 40 50 60 70 80 LEMONS (Millions of pounds) The following graph shows the same PPF for Sylvania 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 Sylvania's consumption after trade.As you did for Freedonia, place a black point {plus symbol) on the following graph to indicate Sylvania's consumption after trade. 6') Sylvania ?l'.| Consumption After Trade BI) PPF 5|) - 4|)- 3|)- SUGAR (Millions of pounds) 2|)- 1l) I 0 1|] 2|] 3|] 41] 50 60 T0 80 LEMONS (Millions of pounds) True or False: Without engaging in international trade, Freeddnia and Sylvania would have been able to consume at the aftertrade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) 70 - Consumption Aer Trade so PPF 4o 30 SUGAR (Millions of pounds) 20 10 I [J 10 2|] 30 41] 50 60 70 30 LEMONS (Millions of pounds) True or False: Without engaging In International trade, Freedonia and Sylvania would have been able to consume at the aftertrade consumption bundles. (Hint: Base this question on the answers you previously entered on this page.) 0 True 0 False Grade It Now Save 8: Continue Continue without saving
