Scenario 20.1 Suppose labor productivity differences are the only determinants o

Question

Scenario 20.1
Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar.

22. Refer to Scenario 20.1. Which of the following statements is true?

a. Brazil has an absolute advantage in producing only coffee.
b. Brazil has an absolute advantage in producing only sugar.
c. Chile has an absolute advantage in the production of both coffee and sugar. d. Chile has an absolute advantage in producing only coffee.
e. Brazil has an absolute advantage in the production of both coffee and sugar.

23. Refer to Scenario 20.1. Which of the following statements is true?
a. Brazil has a comparative advantage in producing coffee.
b. Brazil has a comparative advantage in producing both coffee and sugar.
c. Chile has a comparative advantage in producing both coffee and sugar.
d. Neither Chile nor Brazil has a comparative advantage in producing coffee. e. Brazil has a comparative advantage in producing sugar.

Explanation / Answer

22. d. Chile has an absolute advantage in producing only coffee.

23. e. Brazil has a comparative advantage in producing sugar.

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