Answer to Question #173835 in Microeconomics for Amna

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 Maldonia and Sylvania. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of tea, as indicated by the grey stars marked with the letter A.

Answer 1

Maidonia has a comparative advantage in the production of grain,while Sylvania has comparative advantage in production of tea.

Each country centres its resources on manufacturing only the goods in which it has comparative advantages.