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. Freedonia has a comparative advantage in the production of tea. The countries decide to exchange 24 million pounds of lemons for 24 million pounds of tea. This ratio of goods is known as the terms of trade between Freedonia and Desonia. The following graph shows the PPF for Freedonia, as well as its initial consumption at point A. Place a black point (cross symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. 64 56 56 48 110 TEA (Millions of pounds) 32 24 24 16 16 PPF 8 Freedonia 0 0 8 16 24 32 40 48 56 64 LEMONS (Millions of pounds) ? Consumption After Trade After trade, Freedonia consumes million pounds of lemons as well as million pounds of tea.

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. Freedonia has a comparative advantage in the production of tea. The countries decide to exchange 24 million pounds of lemons for 24 million pounds of tea. This ratio of goods is known as the terms of trade between Freedonia and Desonia. The following graph shows the PPF for Freedonia, as well as its initial consumption at point A. Place a black point (cross symbol) on the graph to indicate Freedonia's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. 64 56 56 48 110 TEA (Millions of pounds) 32 24 24 16 16 PPF 8 Freedonia 0 0 8 16 24 32 40 48 56 64 LEMONS (Millions of pounds) ? Consumption After Trade After trade, Freedonia consumes million pounds of lemons as well as million pounds of tea.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter19: International Trade

Section: Chapter Questions

Problem 3QFR

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