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 Candonia and Lamponia. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of potatoes and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. Candonia Lamponla 64 54 __ 55 55 __ A 43 A 48 m ID 13 "U C E 8 4o 8 4o D. Q \"6 \"6 in 32 u, 32 __ E C 2 .2 E 24 E 24 E E ' 16 ' 16 8 a 0 | | l | 0 | 0 s16 24 32 4o 48 5654 POTATOES (Millions of pounds) POTATOES (Millions of pounds) Candonia has a comparative advantage in the production of V , while Lamponia has a comparative advantage in the production of V . 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 tea and |:] million pounds of potatoes. 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 24 million pounds of potatoes for 24 million pounds of tea. This ratio of goods is known as the price of trade between Candonia and Lamponia. Candonia has a comparative advantage in the production of V , while Lamponia has a comparative advantage in the production of V . Suppose tha pecialize in the production of the goods in which each has a comparative advantage. After specialization, the two countri _- million pounds of tea and |:] million pounds of potatoes. tea neither potatoes nor tea Suppose that Candonia and Lamponia agree to trade. Each . s on producing only the good in which it has a comparative advantage. The countries decide to exchange 24 million pou -n pounds of tea. This ratio of goods is known as the price of both potatoes and tea trade between Candonia and Lamponia. Candonia has a comparative advantage in the production of V , while Lamponia has a comparative advantage in the production of V . Suppose that Candonia and Lamponia specialize in the production of the goods in which each has a comparative - 'on, the two countries can produce a total MC] million pounds of tea and million pounds of potatoes. Potatoes tea Suppose that ree to trade. Each country focuses its resources on producing only the good in which it has a comparative neither potatoes nor tea advantage. T -nge 24 million pounds of potatoes for 24 million pounds of tea. This ratio of goods is known as the price of trade betwe both potatoes and tea The following graph shows the same PPF 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. Candonla 56 -- Consumption After Trade 48 PPF 4o 32 24 TEA (Millions of pounds) 18 0 8 16 24 32 40 4B 56 64 POTATOES (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. Lamponla 55 Consumption After Trade 48 4o 32 24 PPF TEA (Millions of pounds) 16 | l 0 8 1 6 24 32 40 4B 56 54 POTATOES (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.) 0 True 0 False
