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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 frontlers (PPFs) for Maldonia and Sylvania. Both countries produce grain and tea, each initially (l.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. Maldonia Sylvania 64 64 56 56 o 48 48 PPF 32 24 PPF Jo 16 16

Maldonia Sylvania 64 64 56 56 48 48 PPF 32 32 24 PPF 24 16 ト 16 0 8 16 24 32 40 48 56 64 0 8 16 24 32 40 4 56 64 GRAIN (Millions of pounds) GRAIN (Millions of pounds)

Maldonia has a comparative advantage in the production of production of comparative advantage. After specialization, the two countries can produce a total of tea. , while Sylvania has a comparative advantage in the Suppose that Maidonia and Sylvania specialize in the production of the goods in which each has a million pounds of grain and million pounds of Suppose that Maldonia 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 16 million pounds of grain for 16 million pounds of tea. This ratio of goods is known as the price of trade between Maldonia and Sylvania. The following graph shows the same PPF for Maldonia as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Maldonias consumption after trade Note: Dashed drop lines will automatically extend to both axes Maldonia 64 56 Consumption After Trade 48

Maldonia 56 Consumption After Trade 32 24 PPF 16 0 8 16 24 3240 48 56 64 GRAIN (Millions of pounds) The following graph shows the same PPF for Sylvania as before, as well as its initial consumption at point A

As you did for Maldonia, place a black point (plus symbol) on the following graph to indicate Sylvanias consumption after trade Sylvania 64 Consumption After Trade 48 PPF 2 40 32 24 16 0 8 16 24 32 40 48 56 64 GRAIN (Millions of pounds)

40 32 24 16 A. 0 816 24 32 4048 56 64 GRAIN (Millions of pounds) True or False: Without engaging in international trade, Maldonia and Sylvania 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 O False Grade It Now Save & Continue Continue without saving

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