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Question: 4 specialization and trade when a country has a comparative...

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4. Specialization and trade 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 grain and sugar, each initially (i.e., before specialization and trade) producing 6 million pounds of grain and 3 million pounds of sugar, as indicated by the grey stars marked with the letter ACandonia Lamponia 16 16 14 PPF 2 12 8 8 PPF 0 2 810 12 14 16 GRAIN (Millions of pounds) 0 2 810 12 GRAIN (Millions of poundsCandonia has a comparative advantage in the production of production of comparative advantage. After specialization, the two countries can produce a total ofmillion pounds of grain and sugar ▼ , while Lamponia has a comparative advantage in the Suppose that Candonia and Lamponia specialize in the production of the goods in which each has a million pounds of 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 4 million pounds of grain for 4 million pounds of sugar. This ratio of goods is known as the price of trade between Candonia and Lamponia 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 Candonias consumption after trade Note: Dashed drop lines will automatically extend to both axes.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 Lamponias consumption after trade. Lamponia 16 T 14 Consumption After Trade 12 PPF 箱 2 0 248 0 124 16 GRAIN (Millions of pounds)True or False: Without engaging in international trade, Candonia and Lamponia would not 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

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