Answer to Question #326336 in Microeconomics for hasi

Question

1.     An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and an ounce of coffee in 75 minutes.

a.     Who has the absolute advantage in coffee? Explain.

b.     Who has the comparative advantage in coffee? Explain.

c.      If the two countries specialize and trade with each other, who will import coffee? Explain.

d.     Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade.

Answer 1

a.     Absolute advantage in coffee has worker from Brazil, because he can do the same quantity of product faster than worker from Peru (1 ounce, to 0,8 ounce)

b.     Comparative advantage in coffee has worker from Peru, because he can do comparatively more coffee on 1 ounch of soy, that Brazilian do

c.     Coffee will be imported from Peru, because of the reason, that they have comparative advantage in it production

d.     It will happened because, the resources of the countries are limited, so producing the resource, which comparatively best to other will make them possibility to specialize only on it, on the other side, another resource can export countries, which have better possibilities to produce those product