Question

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Answer 1

Candonia's opportunity cost for the production of lemons =24/16= 1.5 pound of sugar.

Candonia's opportunity cost for the production of Sugar= 16/24= 0.67 pound of lemons.

Sylvania's opportunity cost for the production of lemons= 12/24= 0.5 pounds of sugar

Sylvania's opprtunity cost for the production of sugar= 24/12= 2 pounds of lemons.

Because Candonia has a lower opportunity cost for the production of sugar and Sylvania has a lower opportunity cost for the production of lemons.

This implies that Candonia has a comparative advantage in the production of sugar, while Sylvania has a comparative advantage in the production of lemons.  Suppose that both specialize in the production of the goods in which each has a comparative advantage . After specialization , the two countries can produce a total of 24 million pounds of sugar (i.e only Candonia would produce) and 24 million pounds of Lemons (i.e only Sylvania would produce).

Suppose that Candonia and Sylvania agree to trade. The countries decide to exchange 4 million pounds of lemons for 4 million pounds of sugar.

Then ,

		CANDONIA		SYLVANIA
		Lemons (Millions of pounds)	Sugar(Millions of pounds)	Lemons (Millions of pounds)	Sugar(Millions of pounds)
Without trade	Production and consumption	12	6	12	6
With trade	Production	0	24	24	0
	Trade	Import 4	Export 4	Export 4	Import 4
	Consumption	4	(24-4)=20	(24-4)=20	4

By plotting the after trade consumption points , we get the following graphs :

FALSE without engaging in international trade , Candonia and Sylvania would have not been able to consume the after trade consumption point because it lies outside the PPF.