Exhibit 19-1
-Exhibit 19-1 shows the production possibilities frontiers for the countries of Lambda and Beta for fish and coconuts. If the terms of trade are 1 fish per coconut, then Lambda and Beta would be able to benefit from specialization and trade.

Question

Exhibit 19-1 
-Exhibit 19-1 shows the production possibilities frontiers for the countries of Lambda and Beta for fish and coconuts. If the terms of trade are 1  fish per coconut, then Lambda and Beta would be able to benefit from specialization and trade.

Quizplus · Accepted Answer

Lambda has a comparative advantage in fish production and Beta has a comparative advantage in coconut production, so they can benefit from specialization and trade at a terms of trade of 1 fish per coconut. Lambda can specialize in fish production and trade some of it for coconuts with Beta, who can specialize in coconut production and trade some of it for fish with Lambda. This will allow both countries to consume beyond their production possibilities frontier.

Exhibit 19-1 -Exhibit 19-1 Shows the Production Possibilities Frontiers for the Countries