America's comparative advantage. cost of wine is two pounds of coffee, because the four labor-hours required to produce a bottle of wine could instead produce two pounds … (Scenario: Countries A and B) If Country B specializes in steel and produces 300 units of steel, how much wheat can it produce? If one country has a comparative advantage over another, both parties can benefit from trading because each party will receive a good at a price that is lower than its own opportunity cost of producing that good. ٔi�B"�`B$�E!��4���1��]�v(T7��(zr�o�5�t6T���K���T��������Vg����=;!=�X���Q��!u�=I`� ~{t��;]�f����A�ܘ{Gƙ%�9h;Y��%���,�`�Q���4�%Ƴ�L��4%[L. If Brazil has a comparative advantage in the production of coffee compared to the United States, then A) Brazil can produce coffee at a lower opportunity cost than the United States. Technological Change and Trade in Biofuels The U.S. Energy Independence and Security Act of 2007 requires that by 2022, almost 50 percent of the mandated use of renewable fuels be met by second-generation biofuels such as cellulosic ethanol. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? <> Comparative Advantage: A country enjoys a comparative advantage in the production of a good or a service if it can produce it at a lower opportunity cost as compared to its counterpart nations. The United States, of course, has a comparative advantage over Brazil in the production of cars. Consider a possible production possibility frontier for Iraq. c. an absolute advantage in producing both coffee and salmon. %���� Answer: Brazil has an absolute advantage in coffee: – Producing a pound of coffee requires only one labor-hour in Brazil, but two in Argentina. Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 5 of 6 (8) a. Question 4 Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. 2 0 obj Neither Chile nor Brazil has a comparative advantage in producing coffee. This principle generates: (Figure: Consumer and Capital Goods) The movement from Curve 1 to Curve 2 indicates: (Figure: Consumer and Capital Goods) Point Z: is unattainable, all other things unchanged. Brazil has a comparative advantage in producing: Economists usually make the assumption that production is subject to increasing opportunity costs because: all resources are not equally suited to producing every good. d. Belgium has an absolute advantage in brooms. (C) Brazil has an absolute advantage in producing wheat. To simplify, let’s say that Saudi Arabia and the United States each have 100 worker hours (see ). �p�8��b��ZQH�T���7|!W��f��΁;�@CieZ����u\�������r��a�n����#&�ٶ?1i�\J}��@c�>�`�m,� The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.. Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. endobj Even if one country has an absolute advantage in producing all goods, different countries could still have different comparative advantages. (O) Peru has a comparative advantage in producing wheat. Saudi Arabia can produce oil with fewer resources, while t… The plant, originally from Etiopia, was first brought to Brazil by some French settlers who established in the state of Pará in the early 18th century. Country B has comparative advantage in good X. c. Country A has comparative advantage in good X. e. All of the above. If Brazil devoted all of its resources to producing wheat, it would be producing at point A. 3 0 obj endobj stream The United States, of course, has a comparative advantage over Brazil in the production of cars. In , Saudi Arabia has an absolute advantage in producing oil because it only takes an hour to produce a barrel of oil compared to two hours in the United States.The United States has an absolute advantage in producing corn. Argentina has a comparative advantage in wine: – Argentina’s opp. A nation with a comparative advantage makes the trade-off worth it. If each country now specializes in one producing good then assuming constant returns to scale, the output will double. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. (Scenario: Countries A and B) Given this information, Country ________ has a comparative advantage in the production of wheat and Country ________ has a comparative advantage in the production of steel. The production possibility frontier illustrates that: if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced. Which of the following is a normative statement? A country has the comparative advantage of producing a good if the opportunity cost of producing that good is lower in that country than it is in another country. c. Austria has an absolute advantage in steel. Refer to Scenario 20.1. b. will export almonds. %PDF-1.5 The market for goods and services and the market for factors. Compared to what has to be sacrificed, Brazil produces computers for only two-thirds as much as it costs in the United States. The circular-flow diagram illustrates how firms ________ goods and services and ________ factors of production. Argentina has a comparative advantage in wine: – Argentina’s opp. Statement I reflects a normative view. If trade in almonds is allowed, Brazil a. will either import almonds or export almonds, but it is not clear from the given information. In our example, Brazil has a comparative advantage in sugar cane and the U.S. has a comparative advantage in wheat. Strictly speaking, these constitute economic rents rather than comparative advantage — but they still have it and most other countries do not. Further assume that consumers in both countries desire both these goods. c. will import almonds. Suppose Ireland exports beer to China and imports pineapples from the United States. Brazil has: a. a comparative advantage in producing coffee only. (Figure: Guns and Butter) If the economy were operating at point B, producing 16 units of guns and 12 units of butter per period, a decision to move to point E and produce 18 units of butter: involves a loss of 8 units of guns per period. Brazil has to give up 12 (E) Brazil has a comparative advantage units of coffee vs. Peru's 6 producing wheat. 1 0 obj We would all be better off if we could reduce our dependence on oil imports. Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. Brazil has vast mineral and raw material wealth, particularly iron ore but also oil and other minerals. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. Opportunity cost measures a trade-off. (Table: Coffee and Salmon Production Possibilities II) This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. I. The table here, unlike those above, shows labor productivities, i.e., outputs per worker. Which of the following statements is true? 4 0 obj O A. When moving along a production possibility frontier, the opportunity cost to society of getting more of one good: is measured by the amount of the other good that must be given up. The two flows represented in the circular-flow diagram are: the flow of money and the flow of goods and services. Then Brazil has a a. If Brazil increases production of ethanol from 40 barrels per day to 54 barrels per day, the opportunity cost … Solution Paper for Which country has a comparative advantage in producing ethanol? {k׉ͺ^���(!���\��� ���f����@�>� � �\�P�z |D�ݗ a �.���{������}¡����j|������B�$Z�M��XT8��J�2�-��{�ТJ�:����X��T��Xy:Qvp-�!`k�;��Z֫~�(V]��x�P$-R/p���p��b8��O���0�E���n+����-����j{�@�r��Y{߻ Oܡ�=Q||6rsġ-Y4��=�U���A�x���VЧ�v��_��t�3\���5>�E��[޼H�'V������������`��l��K�Н���o��q�J�8#�� 19#5�ƙ��O��3�a�iպ4�����04��}+�����2�omam�������%Q�JʧԒi 6�jY�w+�j�西�Ť���e���7���3�Lm��;�$YB� �2�_e��CF�\='7� p��&tg�'��\�fN\��ڄd�j���������ao��Í��ѹ�pm��v�{������9� ���)b@f�0��a�o�� �Z����m��5V��&���mE�܏L��\�s@$���Ҏ�=��`�1w�I��h��A�bD�ݎ��F�Sۏ��O�Lw'��`+q1Xɜ!K�Z%r�YH���.��j��Ӏ����Lm$�*��֊MW��@nB�G�?hG��1��4���}pidRK�YTi�K���C�`�܆�J%Y��8%x��5L�Nh��,BRh��;�����3�C^�ݏ n�3�=n(3s�l�2���xf�'�T���U-���!��2 To simplify, let’s say that Saudi Arabia and the United States each have 100 worker hours (see ). Consider a hypothetical world with two countries, Saudi Arabia and the United States, and two products, oil and corn. x��[mo�8� ����FE�.� mv����^[܇�pPl%�Jn��~��I�4�h����Z�9�f��Ù�X���x��Ż������R���J��p~��)d�4��ps~&E As it turns out, America's manufacturing sector -far from withering in the face of foreign competition - is actually thriving. The Opportunity Cost For Switzerland To Produce One Smartphone Is 0.75 Fitness Bracelet, B. shift the production possibility frontier outward. Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. If trade in almonds is allowed, Brazil d Mexico will export oranges. The benefits of buying its good or service outweigh the disadvantages. B) Brazil also has an absolute advantage in the production of … (Scenario: Countries A and B) If each country devotes half of its resources towards the production of wheat, and half towards the production of steel, then their total production of wheat would be ________and their total production of steel would be ________. Which country has a comparative advantage in producing ethanol?Expl In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. Ans: e 6. From the North of Brazil, the coffee fields started to spread along the country, concentrating in the areas along the shore. b. a comparative advantage in producing salmon only. Canada has an absolute advantage in both steel and wheat. b. Austria has a comparative advantage in steel. For Brazil, export gains could be made in minerals, animals, food products, hides and skins, metals and raw materials such as alloys and iron ores, all sectors where Brazil has a high revealed comparative advantage compared to the United States. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). (A) Peru has a comparative advantage in coffee. If the production possibility frontier were a straight line sloping down from left to right, this would suggest that: the opportunity costs of the products are constant. (Figure: Guns and Butter) On this figure, points A, B, E, and F: indicate combinations of guns and butter that society can produce using all of its factors efficiently. includes Brazil, has a comparative advantage in producing biofuels that are land-intensive in production). �P���*����T���7�+q{�wo��>����E���nV���}\_4��o�x������_��n�o������Y�y�HO'�,��}䧕p��ﮄp,������פI�墬�d�e�3"�4?������w���E�z\W�;�د�ZѭN\���j�[��͜�M`>QG��/~ Comparative Advantage • A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country than it is in other countries. These goods are homogeneous, meaning that consumers/producers cannot differentiate between corn or oil from either country. producing (B) Peru has an absolute advantage in producing wheat. Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee. The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production. B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-8 23. Compared to what has to be sacrificed, Brazil produces computers for only two-thirds as much as it costs in the United States. There is only one resource available in both countries, labor hours. <>>> <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> The economy's factors of production are not equally suitable for producing different types of goods. One should be especially wary of the national-security argument for restricting trade when that argument is made by Producing 100 cars here costs 666 computers, while producing 100 cars in Brazil costs 1,000 computers. (Scenario: Countries A and B) If Countries A and B both specialize and trade: Country A and Country B will gain if they specialize in their comparatively advantaged good. India has now become the international leader in providing these goods and services to the big powers especially the U.S., because it can produce them cheaply because of its abundance of low cost labor. In , Saudi Arabia has an absolute advantage in producing oil because it only takes an hour to produce a barrel of oil compared to two hours in the United States.The United States has an absolute advantage in producing corn. At present, 50 percent of U.S. imported coffee comes from countries we have an FTA with including Colombia and Guatemala, so Brazil would be well poised to increase its share of U.S. coffee imports under an FTA. Brazilians have a comparative advantage. <> One can easily see this with a simple observation of the extreme production points in the PPFs of the two countries. a. Brazil has a comparative advantage in producing coffee. (Table: Coffee and Salmon Production Possibilities II) This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Which are the two markets represented in the circular-flow diagram? If in 2008 Iraq's resources are not being fully utilized, Iraq will be somewhere ________ of its production possibility frontier. d. a comparative advantage in producing neither coffee nor salmon e. an absolute advantage in producing neither coffee nor salmon ____ 15. endobj A simplified representation that is used to study a real situation is called: The importance of an economic model is that it allows us to: focus on the effects of only one change at a time. (Figure: Guns and Butter) This production possibility frontier is: bowed out from the origin because of increasing opportunity costs. The U.S. needs to increase the minimum wage to $10 per hour. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. Brazil has the absolute advantage in producing beef and the United States has the absolute advantage in autos. The Concept of Comparative Advantage Coffee took an essential part of the Brazilian history. Active Learning 4 Absolute and Comparative Advantage Answers: Brazil has an absolute advantage in coffee: – Producing a pound of coffee requires only one labor-hour in Brazil, but two in Argentina. Of the following statements, which reflect(s) a normative view? b. The opportunity cost of producing one pound of beef is 1/10 of … (Table: Coffee and Salmon Production Possibilities II) This table shows the maximum amounts of coffee and salmon that Brazil and Alaska can produce if they just produce one good. Alaska has an absolute advantage in producing. consume outside its production possibility frontier. Country A has comparative advantage in good X. b. 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