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.

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

a. Brazil has a comparative advantage in producing coffee.

b. Neither Chile nor Brazil has a comparative advantage in producing coffee.

c. Chile has a comparative advantage in producing both coffee and sugar.

d. Brazil has a comparative advantage in producing both coffee and sugar.

e. Brazil has a comparative advantage in producing sugar.

Explanation / Answer

C is Correct

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