Quizzol

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 possibilities frontiers (PPFs) for Yosemite and Rainier. Both countries produce almonds and basil, each initially (i.e., before specialization and trade) producing 36 million pounds of almonds and 18 million pounds of basil, as indicated by the grey stars marked with the letter A.

Yosemite has a comparative advantage in the production of , while Rainier has a comparative advantage in the production of . Suppose 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 almonds and

million pounds of basil.

Suppose that Yosemite and Rainier 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 36 million pounds of almonds for 36 million pounds of basil. This ratio of goods is known as the price of trade between Yosemite and Rainier.

The following graph shows the same PPF for Yosemite as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Yosemite's consumption after trade.

Note: Dashed drop lines will automatically extend to both axes.

The following graph shows the same PPF for Rainier as before, as well as its initial consumption at point A.

As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Rainier's consumption after trade.

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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ANSWER:

Answer

Yosemite has a comparative advantage in the production ofalmonds Correct

, while Rainier has a comparative advantage in the production ofbasil Correct

. Suppose 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 almonds and

million pounds of basil.

Points:

1 / 1

The opportunity cost of a pound of almonds in Yosemite is 1/2 pound of basil, whereas the opportunity cost of a pound of almonds in Rainier is 3/2 pounds of basil. Therefore, Yosemite has a comparative advantage in the production of almonds. (Note: One way to find the opportunity cost of a pound of almonds in Yosemite is to examine how many pounds of almonds Yosemite can produce if it produces only that good and then determine how many pounds of basil it gives up:

\frac{36 million pounds of basil}{72 million pounds of almonds} = 1/2 pound of basil per pound of almonds

The opportunity cost of a pound of basil in Yosemite is 2 pounds of almonds, whereas the opportunity cost of a pound of basil in Rainier is 2/3 pound of almonds. Therefore, Rainier has a comparative advantage in the production of basil.

When the two countries specialize, Yosemite will produce 72 million pounds of almonds, and Rainier will produce 72 million pounds of basil because Yosemite has a comparative advantage in producing almonds and Rainier has a comparative advantage in producing basil.

he following graph shows the same PPF for Yosemite as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Yosemite's consumption after trade.

Note: Dashed drop lines will automatically extend to both axes.

Points:

1 / 1

Because Yosemite has a comparative advantage in the production of almonds, Yosemite will produce 72 million pounds of almonds and 0 pounds of basil. Yosemite exports 36 million pounds of almonds for 36 million pounds of basil. So, after trade, Yosemite consumes 36 million pounds of almonds as well as 36 million pounds of basil.

The following graph shows the same PPF for Rainier as before, as well as its initial consumption at point A.

As you did for Yosemite, place a black point (plus symbol) on the following graph to indicate Rainier's consumption after trade.

rue 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

Points:

1 / 1

Without engaging in international trade, any quantity outside a country's original PPF is considered infeasible. In other words, given an individual country's resources, the bundles on the PPF are the greatest quantities of the goods that a country can produce (and, therefore, consume) without trade. By exploiting each country's comparative advantage to realize gains from trade, Yosemite and Rainier can actually consume outside their individual PPFs through specialization.

Posted by Cleveland on August 30, 2024