Show transcribed image text 100% (2 ratings)Maldonia has a comparative advantage in the production of sugar since it can produce more sugar using the same resources (24 vs 12 million pounds). Lamponia has a comparativ…View the full answerTranscribed image text: When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 32 28 24 20 16 12 co 0 PPF 4 Maldonia 8 12 16 20 24 LEMONS (Millions of pounds) 28 32 (?) SUGAR (Millions of pounds) 32 28 24 20 16 12 8 4 0 0 PPF 4 Lamponia A 8 12 16 20 24 LEMONS (Millions of pounds) 28 32 Maldonia has a comparative advantage in the production of sugar , while Lamponia has a comparative advantage in the Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a 24 million pounds of sugar and 24 million pounds of production of lemons comparative advantage. After specialization, the two countries can produce a total of lemons. 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 4 million pounds of lemons for 4 million pounds of sugar. This ratio of goods is known as the terms 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. SUGAR (Millions of pounds) 32 28 24 20 16 12 8 0 PPF 4 – 8 Maldonia 12 16 20 LEMONS (Millions of pounds) 24 28 32 Consumption After Trade The following graph shows the same PPF for Lamponia 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 Lamponia’s consumption after trade. SUGAR (Millions of pounds) 32 28 24 20 16 12 PPF 8 4 0 0 4 Lamponia 8 A 12 16 20 LEMONS (Millions of pounds) 24 28 32 Consumption After Trade True or False: Without engaging in international trade, Maldonia and Lamponia 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.) O True False
