Glacier has a comparative advantage in the production of , while Denali has a comparative advantage in the production of . Suppose that Glacier and Denali 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 peas and
million pounds of lentils.
Suppose that Glacier and Denali 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 6 million pounds of peas for 6 million pounds of lentils. This ratio of goods is known as the price of trade between Glacier and Denali.
The following graph shows the same PPF for Glacier as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Glacier's consumption after trade.
Note: Dashed drop lines will automatically extend to both axes.
Glacier
Consumption After Trade
0
6
12
18
24
30
36
42
48
48
42
36
30
24
18
12
6
0
LENTILS (Millions of pounds)
PEAS (Millions of pounds)
PPF
A
The following graph shows the same PPF for Denali as before, as well as its initial consumption at point A.
As you did for Glacier, place a black point (plus symbol) on the following graph to indicate Denali's consumption after trade.
Denali
Consumption After Trade
0
6
12
18
24
30
36
42
48
48
42
36
30
24
18
12
6
0
LENTILS (Millions of pounds)
PEAS (Millions of pounds)
PPF
A
True or False: Without engaging in international trade, Glacier and Denali 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.)
