Maldonia has a comparative advantage in the production o Specialization and trade

When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner.

Because of this comparative advantage, both countries benefit when they specialize and trade with each other.

The following graphs show the production possibilities frontiers $($PPFs$)$ for Maldonia and Lamponia. Both countries produce grain and sugar, each

initially $($that is$,$ before specialization and trade$)$ producing $18$ million pounds of grain and $9$ million pounds of sugar, as indicated by grey points $($star

symbols$)$ labeled point A$.$ Maldonia has a comparative advantage in the production o

$,$ while Lamponia has a comparative advantage in the

production of

$.$ If each fully specializes $($that is$,$ produces only the good for which each has a comparative advantage$),$

the most the two countries can produce is

million pounds of grain and

million pounds of sugar.

Suppose that Maldonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are $1$ pound of grain

for $1$ pound of sugar. That is$,$ Maldonia is willing to sell Lamponia $1$ pound of grain in exchange for $1$ pound of sugar, and Lamponia is willing to sell

Maldonia $1$ pound of sugar in exchange for $1$ pound of grain. The countries decide to exchange $12$ million pounds of grain for $12$ million pounds of

sugar.

The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A$.$ Use the green line $($triangle symbol$)$ to

plot the trading possibilities line $($TPL$)$ for Maldonia. Then place the black point $($plus symbol$)$ on the trading possibilities line to indicate Maldonia's

consumption after specialization and trade.

Note: Dashed drop lines will automatically extend to both axes. The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A$.$

As you did for Maldonia, use the green line $($triangle symbol$)$ to plot the trading possibilities line $($TPL$)$ for Lamponia. Then place the black point $($plus

symbol$)$ on the trading possibilities line to indicate Lamponia's consumption after specialization and trade.

True or False: Without engaging in international trade, Maldonia and Lamponia would not have been able to consume at the after$-$trade consumption

bundles. $($Hint: Base your answer to this question on the answers you previously entered on this page.$)$

True

$,$ while Lamponia has a comparative advantage in the

production of

$.$ If each fully specializes $($that is$,$ produces only the good for which each has a comparative advantage$),$

the most the two countries can produce is

million pounds of grain and

million pounds of sugar.

Suppose that Maldonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are $1$ pound of grain

for $1$ pound of sugar. That is$,$ Maldonia is willing to sell Lamponia $1$ pound of grain in exchange for $1$ pound of sugar, and Lamponia is willing to sell

Maldonia $1$ pound of sugar in exchange for $1$ pound of grain. The countries decide to exchange $12$ million pounds of grain for $12$ million pounds of

sugar.

The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A$.$ Use the green line $($triangle symbol$)$ to

plot the trading possibilities line $($TPL$)$ for Maldonia. Then place the black point $($plus symbol$)$ on the trading possibilities line to indicate Maldonia's

consumption after specialization and trade.

Note: Dashed drop lines will automatically extend to both axes.