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 Rainier. Both countries produce almonds and basil, each initially (i.e., before specialization and trade) producing 18 million pounds of almonds and 9 million pounds of basil, as indicated by the grey stars marked with the letter A.

Yosemite06121824303642484842363024181260BASIL (Millions of pounds)ALMONDS (Millions of pounds)PPFA

Rainier06121824303642484842363024181260BASIL (Millions of pounds)ALMONDS (Millions of pounds)PPFA

Yosemite has a comparative advantage in the production of , while Rainier has a comparative advantage in the production of . Suppose that Yosemite and Rainier specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of

millionpounds of basil and

millionpounds of almonds.

Suppose that Yosemite and Rainier 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 6 million pounds of almonds for 6 million pounds of basil. This ratio of goods is known as the price of tradebetween Yosemite and Rainier.

The following graph shows the same PPF for Yosemite as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Yosemite's consumption after trade.

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

YosemiteConsumption After Trade06121824303642484842363024181260BASIL (Millions of pounds)ALMONDS (Millions of pounds)PPFA

The following graph shows the same PPF for Rainier 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 Rainier's consumption after trade.

RainierConsumption After Trade06121824303642484842363024181260BASIL (Millions of pounds)ALMONDS (Millions of pounds)PPFA

True or False: Without engaging in international trade, Yosemite and Rainier 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