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 Yosemite and Rainier. Both countries produce peas and basil, each initially (i.e., before specialization and trade) producing 18 million pounds of peas and 9 million pounds of basil, as indicated by the grey stars marked with the letter A.Yosemite has a comparative advantage in the production of peas, while Rainier has a comparative advantage in the production of basilSuppose that Yosemite 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 peas and ___million pounds ofbasil.
Note: Dashed drop lines will automatically extend to both axes.
Consumption After Trade
The following graph shows the same PPF for Rainier as before, as well as its initial consumption at point A.
True or False: Without engaging in international trade, Yosemite and Rainier 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
False
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