Homework (Ch 03) - 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 Yosemite and Congaree. Both countries produce corn and basil, each initially (i.e., before specialization and trade) producing 24 million pounds of corn and 12 million pounds of basil, as indicated by the grey stars marked with the letter A. Yosemite Congaree 64 56 56 PPF 40 Slope: -1.5 40 X-Intercept: 32 32 32 BASIL (Millions of pounds) BASIL (Millions of pounds) Y-Intercept: 48 24 24 PPP A A CO 8 18 24 32 40 48 56 64 18 24 32 40 48 56 64 CORN (Millions of pounds) CORN (Millions of pounds)Yosemite has a comparative advantage in the production of T , while Congaree has a comparative advantage in the production of T . Suppose that Yosemite 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: million pounds of basil and |:| million pounds of CDT\". Suppose that Yosemite and Congaree agree to tlade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 24 million pounds of corn for 24 million pounds of basil. This ratio of goods is Icnown as the price of trade between Yosemite and lCongaree. The following graph shows the some PPF liar Yosemite as before, as well as is initial consumption at point A. Place a black point {plus symbol) on the graph to indicate Yosemite's consumption a'er trade. Note: Dashed drop lines will automatically extend to both axes. Yosemite 34 56 Consumption After Trade 48 PPF 40 32 BASIL (Millions of pounds) 24 16 A 8 18 24 32 40 48 56 64 CORN (Millions of pounds) The following graph shows the same PPF for Congaree as before, as well as its initial consumption at point A. As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Congaree's consumption after trade.As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Congaree's consumption after trade. Congaree 64 58 Consumption After Trade 48 40 32 BASIL (Millions of pounds) 24 PPF 16 A 18 24 32 40 48 56 64 CORN (Millions of pounds) True or False: Without engaging in international trade, Yosemite and Congaree 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.) True O False