When a countrllr has a comparative advantage in the production of a goodr it means that it can produce this good at a lower opportunity
When a countrllr has a comparative advantage in the production of a goodr it means that it can produce this good at a lower opportunity cost than its trading partner. Then the countryr 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 Lamponia. Both countries produce lemons and sugar, each initially:r (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the greyr stars marked with the letter A. Candonia Lamponia 54 54 56 56 E 43 E 43 C C :5 . :5 C) ' C) a 4D Slope: -1.5 a 4D "5 \"5 "3 X-lnterce 1:32.00 03 g 32 p g 32 E , YIntercept: 48.00 E U 24 '-' 24 D: [E E E 3 16 3 16 (D (D a a o o o 3 16 24 32 40 48 56 54 o 3 16 24 32 40 48 56 54 LEMONS (Millions of pounds) LEMONS (Millions of pounds) The following graph shows the same PPF for Lamponia as before, as well as its initial consumption at point A. As you did for Candonia, place a black point (plus symbol) on the following graph to indicate Lamponia's consumption after trade. Lamponia .+ 56 Consumption After Trade 48 40 32 SUGAR (Millions of pounds) 24 PPF 16 CO 16 24 32 40 48 56 64 LEMONS (Millions of pounds) True or False: Without engaging in international trade, Candonia and Lamponia 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.) O True O FalseCandonia has a comparative advantage in the production of sugar , while Lamponia has a comparative advantage in the production of lemons . Suppose that Candonia and Lamponia 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 sugar and million pounds of lemons. Suppose that Candonia and Lamponia 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 16 million pounds of lemons for 16 million pounds of sugar. This ratio of goods is known as the price of trade between Candonia and Lamponia. The following graph shows the same PDF for Candonia 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. Note: Dashed drop lines will automatically extend to both axes. (? ) Candonia 34 -+ 58 Consumption After Trade 48 PPF 40 32 SUGAR (Millions of pounds) 24 16 A 0 16 24 32 40 48 56 64 LEMONS (Millions of pounds)
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