Glacier has a comparative advantage in the production of , while Rainier has a comparative advantage in the production Suppose that Glacier and Rainier specialize in the production of the goods in which each has a comparative million pounds of corn. of advantage. After specialization, the two countries can produce a total of million pounds of basil and Suppose that Glacier and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of trade between Glacier and Rainier.
Glacier has a comparative advantage in the production of , while Rainier has a comparative advantage in the production Suppose that Glacier and Rainier specialize in the production of the goods in which each has a comparative million pounds of corn. of advantage. After specialization, the two countries can produce a total of million pounds of basil and Suppose that Glacier and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of trade between Glacier and Rainier.
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter2: Productions Possibilities, Opportunity Costs, And Economic Growth
Section: Chapter Questions
Problem 7SQ
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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
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 Glacier and Rainier. Both countries produce corn and basil, each initially (i.e.,
before specialization and trade) producing 18 million pounds of corn and 9 million pounds of basil, as indicated by the grey stars marked with the
letter A.
BASIL (Millions of pounds)
48
42
36
30
24
18
12
6
0
0
PPF
6
Glacier
A
12 18 24 30 36
CORN (Millions of pounds)
42 48
?
BASIL (Millions of pounds)
48
42
36
30
24
18
12
6
0
0
PPF
I
+
6
Rainier
12
18 24 30 36
CORN (Millions of pounds)
I
42 48
(?)
Glacier has a comparative advantage in the production of
while Rainier has a comparative advantage in the production
of
Suppose that Glacier and Rainier specialize in the production of the goods in which each has a comparative
advantage. After specialization, the two countries can produce a total of
million pounds of corn.
million pounds of basil and
Suppose that Glacier and Rainier 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 6 million pounds of corn for 6 million pounds of basil. This ratio of goods is known as the price of
trade between Glacier and Rainier.
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