Aa Aa 2. Consumption possibilities based on comparative advantage Economists bel

Question

Aa Aa 2. Consumption possibilities based on comparative advantage Economists believe that when two countries specialize and trade, each country will be able to buy the goods in which the other specializes at a lower cost than it would take to produce those goods themselves The following graphs show the production possibilities frontiers (PPFs) for Freedonia and Sylvania. Both countries produce tea and potatoes. Without specialization and trade, both countries produce 4 million pounds of tea and 4 million pounds of potatoes, as indicated by the grey stars marked A. Assume that when Freedonia and Sylvania open to international trade, they trade with many other countries, as well with each other Sylvania Freedonia TEA (Millions of pounds) TEA (Millions of pounds) 16 16 14 14 12 12 10 10 2 468 10 12 14 16 2 468 10 12 14 16 POTATOES (Millions of pounds POTATOES (Millions of pounds

Explanation / Answer

Potatoes, Tea, 12, 12 (The Graph is Steeped towards Potatoes in comparison to Tea also see ratios of Patotoes to tea). Both Will Individually Produce the Maximum i.e 12 Million Pounds

Would Not

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