How much we can consume Economists believe that when two countries specialize an

Question

How much we can consume Economists believe that when two countries specialize and trade, each country will be able to buy the goods in which the other specializes at a lower cost than it would take to produce those goods themselves. The following graphs show the production possibilities frontiers (PPFs) for Freedonia and Sylvania. Both countries produce tea and potatoes. Without specialization and trade, both countries produce 8 million pounds of tea and 8 million pounds of potatoes, as indicated by the grey stars marked A. Assume that when Freedonia and Sylvania open to international trade, they trade with many other countries, as well with each other. Freedonia has a comparative advantage in the production of_____, while Sylvania has a tea neither potatoes nor tea potatoes both potatoes and tea comparative advantage in the production of_____. If each fully specializes (that is, both potatoes and tea potatoes tea neither potatoes nor tea produces only the good for which each has a comparative advantage), the most the two countries can produce is_____pounds of tea and_____pounds of potatoes. Suppose that Freedonia and Sylvania specialize and open up to international trade, and the terms of trade in the world market are 1 pound of potatoes for 1 pound of tea. That is, Freedonia is willing to sell Sylvania 1 pound of tea in exchange for 1 pound of potatoes, and Sylvania is willing to sell Freedonia 1 pound of potatoes in exchange for 1 pound of tea. The countries decide to exchange 12 million pounds of Sylvanian potatoes for 12 million pounds of Freedonia tea. The following graph shows the production possibilities frontier for Freedonia. Use the black point (X symbol) to indicate Freedonia's consumption after specialization and trade. The following graph shows the production possibilities frontier for Sylvania. As you did for Freedonia, use the black point (X symbol) to indicate Sylvnaia's consumption after specialization and trade. Sylvania and Freedonia_____have been able to consume at the after-trade consumption bundles you would would not found if they did not engage in international trade.

Explanation / Answer

a. Fredonia has a comparitive advantage in production of tea while sylvania has a comparitive advantage in production of potatoes.

b. 24 millions of tea and 24 millions of potatoes, because that is the maximum they can produce according to thier PPF.

c. Fredonia will consume 12 million pounds of tea and 12 million pounds of potatoes.Same for sylvania.

d. Both would not have been able to.. because they are consuming more of both goods now.

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.