Homework (Ch 03) Due on Jan 28 at 11:59 PM EST When a country has a comparative

Question

Homework (Ch 03) Due on Jan 28 at 11:59 PM EST 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 Maldonia and Lamponia. Both countries produce lemons and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of lemons and 6 milion pounds of coffee, as indicated by the grey stars marked with the letter A. Maldonia Lamponia 28 O Type here to search

Explanation / Answer

Maldonia has lower opportunity cost in producing Coffee and Lamponia has lower opportunity cost in producing Lemons

Therefore Maldoina has comparative advantage in producing Coffee and Lamponia has comparative advantage in producing Lemons.

Maldonia will produce 24 mn Pounds of Coffee and Lamponia will produce 24 mn Pounds of Lemon.

Only after engaging into the trade both countries collectively produce higher output of each commodity therefore True

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