When a country has a comperative advantage in the production

When a country has a comperative advantage in the production of a good, it means that it can produce this g0od 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 pessbilieies frontiers (PPFs) for Maildonis and Desonia. both countries produce potatoes and tea, each initialily (e, before specia zation and trade) producing 30 million pounds of potatoes and 15 milion pounds of tea, as indicated by the grey stars marked with the letter A 20304050 7080 POTATOES (Milions af pounds) POTATOES (Milions of pounds) donia has a comparative advantage in the production of while Desonia has a comparative advantage in the . Suppose that Maldon a and Desona specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of milion pounds of potatoes and milion pounds of 5 6 7 8

Solution

Desonia has comparative advantage in tea because it\'s costs 40/60 is less than that of mardonia 60/30.This also means mardonia has comparative advantage in potatoes

Desonia will produce 60 tea and exchange 20 for 20 potatoes it\'s consumption point is 40 tea and 20 potatoes. Draw point there

Maidonia produces 60 potatoes. After exchange it has 20 tea and 40 potatoes. Draw point there

True as shown above