1. Specialization and trade When a country specializes in the production of a go
ID: 1127898 • Letter: 1
Question
1. 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 Desonia. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 6 million pounds of lemons and 3 million pounds of coffee, as indicated by the grey stars marked with the letter A Desonia Maldonia 16 16 14 12 10 10 2 0 2 4 6 810 12 1416 LEMONS (Millions of pounds) 0 2 46 810 12 1416 LEMONS (Millions of pounds)Explanation / Answer
All the answers are correct.
(Maldonia has comparative advantage in production of lemons (it can produce more lemons in comparison to Desonia when all of its resources are used in production of the same) while Desonia has comparative advantage in production of coffee)
The statement is true
(Without international trade, Maldonia and Desonia would have not been able to move out of the limits imposed by their production possibilities frontier which gives the maximum production capacity based on full utilization of resources)
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