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The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Denali.

The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Denali. Both countries produce corn and lentils, each initially (i.e., before specialization and trade) producing 24 million pounds of corn and 12 million pounds of lentils, as indicated by the grey stars marked with the letter A.

The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Denali.

Shenandoah has a comparative advantage in the production of lentils   , while Denali has a comparative advantage in the production of corn   . Suppose that Shenandoah 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 48 million pounds of lentils and 48 million pounds of corn.

Explanation:
The opportunity cost of a pound of corn in Shenandoah is 3/2 pounds of lentils, whereas the opportunity cost of a pound of corn in Denali is 1/2 pound of lentils. Therefore, Denali has a comparative advantage in the production of corn. (Note: One way to find the opportunity cost of a pound of corn in Shenandoah is to examine how many pounds of corn Shenandoah can produce if it produces only that good and then determine how many pounds of lentils it gives up: 48 million pounds of lentils32 million pounds of corn=3/2 pounds of lentils per pound of corn.)
The opportunity cost of a pound of lentils in Shenandoah is 2/3 pound of corn, whereas the opportunity cost of a pound of lentils in Denali is 2 pounds of corn. Therefore, Shenandoah has a comparative advantage in the production of lentils.
When the two countries specialize, Shenandoah will produce 48 million pounds of lentils, and Denali will produce 48 million pounds of corn because Shenandoah has a comparative advantage in producing lentils and Denali has a comparative advantage in producing corn.

Suppose that Shenandoah 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 24 million pounds of corn for 24 million pounds of lentils. This ratio of goods is known as the price of trade between Shenandoah and Denali.

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

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

The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Denali.
Explanation:
Because Shenandoah has a comparative advantage in the production of lentils, Shenandoah will produce 48 million pounds of lentils and 0 pounds of corn. Shenandoah exports 24 million pounds of lentils for 24 million pounds of corn. So, after trade, Shenandoah consumes 24 million pounds of corn as well as 24 million pounds of lentils.

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

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

The following graphs show the production possibilities frontiers (PPFs) for Shenandoah and Denali.
Explanation:
Because Denali has a comparative advantage in the production of corn, Denali will produce 48 million pounds of corn and 0 pounds of lentils. Denali exports 24 million pounds of corn for 24 million pounds of lentils. So, after trade, Sylvania consumes 24 million pounds of corn as well as 24 million pounds of lentils.

True or False: Without engaging in international trade, Shenandoah 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.)

CorrectTrue

Explanation:
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, Shenandoah and Denali can actually consume outside their individual PPFs through specialization.

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