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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 Freedonia and Desonia. Both countries produce grain and sugar, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. Freedonia Desonia 32 32 28 PPF Slope: 1.5 X-Intercept: 16 Y-intercept: 24 16 16 Slope: -0.5 X-Intercept: 24 Y-Intercept: 12 PPF 0 4 8116 20 24 28 32 0 4 8116 20 24 28 32 GRAIN (Millions of pounds) GRAIN (Millions of pounds)Freedonia has a comparative advantage in the production of production of comparative advantage. After specialization, the two countries can produce a total of grain. , while Desonia has a comparative advantage in the ▼ . Suppose that Freedonia and Desonia specialize in the production of the goods in which each has a million pounds of sugar and million pounds of Suppose that Freedonia and Desonia 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 Freedonia and Desonia. The following graph shows the same PPF for Freedonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Freedonias consumption after tradegrain sugar neither grain nor sugar both grain and sugarNote: Dashed drop lines will automatically extend to both axes. Freedonia 32 28 Consumption After Trade 24PPF 5 16 0 486 20 24 2832 GRAIN (Millions of pounds) The following graph shows the same PPF for Desonia as before, as well as its initial consumption at point AAs you did for Freedonia, place a black point (plus symbol) on the following graph to indicate Desonias consumption after trade. Desonia 32 28 Consumption After Trade 8 20 16 12 PPF 卒 0 48 6 20 24 2832 GRAIN (Millions of pounds) True or False: Without engaging in international trade, Freedonia and Desonia 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.) O True O False

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