When a country has a comparative advantage in the production of a good, it means

Question

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 possiblities frontiers (PPFs) for Maldonia and Desonia. Both countries produce grain and coffee, each Initially (i.e, before specialization and trade) producing 24 million pounds of grain and 12 million pounds of coffee, as indicated by the grey stars marked with the letter A. Desonia 64 64 56 56 48 PPF 48 40 32 32 24 24

Explanation / Answer

Maldonia has comparative advantage in coffee and Desonia has comparative advantage in Grain.

A country has comparative advantage in a product when country produces any good/ service with using minimum inputs.

Maldonia in this case can produce 48 mn Pounds of Coffee where Desonia could produce 24 mn Pounds of grain.Hence Maldonia has comparative advantage in producing COFFEE over Desonia similarly we can show that Desonia has comparative advantage in producing GRAIN.

If trade is in place then Total quantity of Coffee is produced will be 48 mn Pounds and Grains will be 48 mn Pounds.

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