Freedonia has a comparative advantage in the production of (lemons, coffee, neit

Question

Freedonia has a comparative advantage in the production of (lemons, coffee, neither lemons nor coffee, both lemons and coffee), while Sylvania has a comparative advantage in the production of (lemons, coffee, neither lemons nor coffee, both lemons and coffee). Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of [Enter Here] million pounds of lemons and [Enter Here] million pounds of coffee.

Suppose that Freedonia and Sylvania 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 8 million pounds of lemons for 8 million pounds of coffee. This ratio of goods is known as the terms of trade between Freedonia and Sylvania.

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

1. Specialization and trade A country may specalize in the production of a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Freedonia and Sylvania. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of coffee, as indicated by the grey stars marked with the letter A Sylvania 64 56 a 48 64 56 48PPC 40 32 24 16 40 32 16 0 8 16 24 32 40 48 5 64 0 8 16 24 32 40 48 5 64 LEMONS (Millions of paunds) LEMONS (Millions of paunds)

Explanation / Answer

Freedonia has a comparative advantage in the production of lemons, while Sylvania has a comparative advantage in the production of coffee. Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of 48 million pounds of lemons and 48 million pounds of coffee.

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

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