Suppose that Maldonia 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 24 million pounds of grain for 24 million pounds of sugar. This ratio of goods is known as the price of trade between Maldonia and Lamponia. 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 Maldonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes.
Suppose that Maldonia 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 24 million pounds of grain for 24 million pounds of sugar. This ratio of goods is known as the price of trade between Maldonia and Lamponia. 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 Maldonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes.
Chapter28: International Trade And Finance
Section: Chapter Questions
Problem 1SQP
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Maldonia and lamponias consumption after trade on the graph!
Transcribed Image Text: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
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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 Maldonia and Lamponia. Both countries produce grain and sugar, each
initially (I.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of sugar, as indicated by the grey stars
marked with the letter A.
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Maldonia
Lamponia
64
64
56
56
48
PPF
48
40
40
32
32
24
24
PPF
24, 12
16
16
16
24
32
40
48
56
64
16
24
32
40
48
56
64
GRAIN (Millions of pounds)
GRAIN (Millions of pounds)
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SUGAR (Millions of pounds)
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Transcribed Image Text:Suppose that Maldonia 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 24 million pounds of grain for 24 million pounds of sugar. This ratio of goods is known as the price of
trade between Maldonia and Lamponia.
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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 Maldonia's consumption after trade.
A-Z
Tips
Note: Dashed drop lines will automatically extend to both axes.
s Tips
YOU
Maldonia
64
56
Consumption After Trade.
Test
48
PPF
40
32
edback
24
16
32
40
48
66
64
16
24
GRAN (Millions of pounds)
MacBook Air
F12
F10
14
F8
F9
000
F7
F6
吕0
D00 F4
F5
F3
F2
&
*
delete
#
$
%
7
8
9
SUGAR (Millions of pounds)
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