b. a comparative advantage in producing salmon only. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 5 of 6 (8) a. As it turns out, America's manufacturing sector -far from withering in the face of foreign competition - is actually thriving. (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. Then Brazil has a a. 2 0 obj Country A has comparative advantage in good X. b. 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. Country B has comparative advantage in good X. c. Country A has comparative advantage in good X. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. In our example, Brazil has a comparative advantage in sugar cane and the U.S. has a comparative advantage in wheat. (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. The United States, of course, has a comparative advantage over Brazil in the production of cars. 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. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. Coffee took an essential part of the Brazilian history. Producing 100 cars here costs 666 computers, while producing 100 cars in Brazil costs 1,000 computers. The market for goods and services and the market for factors. 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.. �p�8��b��ZQH�T���7|!W��f��΁;�@CieZ����u\�������r��a�n����#&�ٶ?1i�\J}��@c�>�`�m,� <> Brazil has the absolute advantage in producing beef and the United States has the absolute advantage in autos. c. an absolute advantage in producing both coffee and salmon. Compared to what has to be sacrificed, Brazil produces computers for only two-thirds as much as it costs in the United States. 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. The United States, of course, has a comparative advantage over Brazil in the production of cars. (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. The Opportunity Cost For Switzerland To Produce One Smartphone Is 0.75 Fitness Bracelet, B. One can easily see this with a simple observation of the extreme production points in the PPFs of the two countries. If Brazil increases production of food crops from 2 tons per day to 3 tons per day, the opportunity cost of the additional ton of food crops is 14 barrels of ethanol. Which of the following is a normative statement? Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. Consider a hypothetical world with two countries, Saudi Arabia and the United States, and two products, oil and corn. Argentina has a comparative advantage in wine: – Argentina’s opp. Answer: Brazil has an absolute advantage in coffee: – Producing a pound of coffee requires only one labor-hour in Brazil, but two in Argentina. I. These goods are homogeneous, meaning that consumers/producers cannot differentiate between corn or oil from either country. Which are the two markets represented in the circular-flow diagram? Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia 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. Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? b. %���� Solution Paper for Which country has a comparative advantage in producing ethanol? d. Belgium has an absolute advantage in brooms. Saudi Arabia can produce oil with fewer resources, while t… The two flows represented in the circular-flow diagram are: the flow of money and the flow of goods and services. If Brazil increases production of ethanol from 40 barrels per day to 54 barrels per day, the opportunity cost … 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. Suppose that Brazil has a comparative advantage in coffee and Mexico has a comparative advantage in tomatoes. 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