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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 potatoes and coffee, each initially (i.e., before specialization and trade) producing 6 million pounds of potatoes and 3 million pounds of coffee, as indicated by the grey stars marked with the letter A Lamponia Candonia 16 16 14 14 PPF 12 10 10 PPF 6, 3 0 246810 12 14 16 POTATOES (Millions of pounds) 0 246810 12 14 16 POTATOES (Millions of pounds)Candonia has a comparative advantage in the production of production of comparative advantage. After specialization, the two countries can produce a total of coffee. , 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 ー million pounds of potatoes and 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 potatoes for 4 million pounds of coffee. 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.potatoes coffee neither potatoes nor coffee both potatoes and coffeeNote: Dashed drop lines will automatically extend to both axes Candonia 16 Consumption After Trade 10 PPF 卒 0 2410 12 146 POTATOES (Millions of pounds) The following graph shows the same PPF for Lamponía 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 14 Consumption After Trade 12 PPF 10 0 4 14 16 10 POTATOES (Millions of pounds) True or False: Without engaging in international trade, Candonia and Lamponia would 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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