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 Maldonia and Desonia. Both countries produce lemons and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. ? ? Maldonia Desonia 64 64 58 58 48 48 PPF 40 40 TEA (Millions of pounds) 32 TEA (Millions of pounds) 32 24 PPF 24 Slope: -0.5 X-Intercept: 48 Y-Intercept: 24 16 16 8 8 0 0 0 8 16 24 64 0 O 8 16 24 32 40 48 58 64 32 40 4358 LEMONS (Millions of pounds) LEMONS (Millions of pounds) In the following table, enter each country's production decision on the third row of the table (marked "Production). Suppose the country that produces jeans trades 18 million pairs of jeans to the other country in exchange for 54 million bushels of corn. In the following table, select the amount of each good that each country exports and imports in the boxes across the row marked "Trade Action," and enter each country's final consumption of each good on the line marked "Consumption." When the two countries did not specialize, the total production of jeans was 23 million pairs per month, and the total production of corn was 68 million bushels per month. Because of specialization, the total production of jeans has increased by 12 million pairs per month, and the total production of corn has increased by 9 million bushels per month. Because the two countries produce more jeans and more corn under specialization, each country is able to gain from trade. Calculate the gains from trade-that is, the amount by which each country has increased its consumption of each good relative to the first row of the table. In the following table, enter this difference in the boxes across the last row (marked "Increase in Consumption"). Dolorium Arcadia Jeans Corn Jeans Corn (Millions of pairs) (Millions of bushels) (Millions of pairs) (Millions of bushels) 15 8 48 20 20 15 8 48 Without Trade Production Consumption With Trade Production Trade action Consumption Gains from Trade Imports 18 Exports 54 Exports 18 Imports 54 Increase in Consumption The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Maldonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. ? Maldonia 84 56 + Consumption After Trade 48 40 TE A (Millions of pounds) 32 24 PPF 16 - 1 1 1 1 1 - 8 0 0 0 8 58 84 16 24 32 40 48 LEMONS (Millions of pounds) The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point A. As you did for Maldonia, place a black point (plus symbol) on the following graph to indicate Desonia's consumption after trade. ? Desonia 84 + 58 Consumption After Trade 48 PPF 40 TE A (Millions of pounds) 32 24 16 - 8 0 0 0 8 56 84 16 24 32 40 48 LEMONS (Millions of pounds) True or False: Without engaging in international trade, Maldonia and Desonia 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 False
