Specialization and trade 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 Candonia and Lamponia. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of tea, as indicated by the grey stars marked with the letter A.

Question: Candonia has a comparative advantage in the production of Potatoes/Tea/Neither potatoes nor tea/Both potatoes and tea, while Lamponia has a comparative advantage in the production of Potatoes/Tea/Neither potatoes nor tea/Both potatoes and tea. Suppose that Candonia and Lamponia 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 tea and? million pounds of potatoes.

 

Leave a Comment