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. For example, Brazil enjoys a comparative advantage over the United States in coffee (we don’t produce it except some specialty in Hawaii). 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. c. will import almonds. (O) Peru has a comparative advantage in producing wheat. Canada has an absolute advantage in both steel and 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. Suppose Ireland exports beer to China and imports pineapples from 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. (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 ________. 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. Saudi Arabia can produce oil with fewer resources, while t… d. Belgium has an absolute advantage in brooms. Opportunity cost measures a trade-off. The table here, unlike those above, shows labor productivities, i.e., outputs per worker. From the North of Brazil, the coffee fields started to spread along the country, concentrating in the areas along the shore. 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. Even if one country has an absolute advantage in producing all goods, different countries could still have different comparative advantages. A nation with a comparative advantage makes the trade-off worth it. c. Austria has an absolute advantage in steel. c. an absolute advantage in producing both coffee and salmon. 3 0 obj d. a comparative advantage in producing neither coffee nor salmon e. an absolute advantage in producing neither coffee nor salmon ____ 15. If trade in almonds is allowed, Brazil a. will either import almonds or export almonds, but it is not clear from the given information. Which of the following statements is true? The market for goods and services and the market for factors. includes Brazil, has a comparative advantage in producing biofuels that are land-intensive in production). a. Brazil has a comparative advantage in producing coffee. Alaska has an absolute advantage in producing. Statement I reflects a normative view. producing (B) Peru has an absolute advantage in producing wheat. 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. The economy's factors of production are not equally suitable for producing different types of goods. Consider a hypothetical world with two countries, Saudi Arabia and the United States, and two products, oil and corn. To simplify, let’s say that Saudi Arabia and the United States each have 100 worker hours (see ). (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. Compared to what has to be sacrificed, Brazil produces computers for only two-thirds as much as it costs in the United States. (C) Brazil has an absolute advantage in producing wheat. One should be especially wary of the national-security argument for restricting trade when that argument is made by If Brazil devoted all of its resources to producing wheat, it would be producing at point A. (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 two flows represented in the circular-flow diagram are: the flow of money and the flow of goods and services. {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 There is only one resource available in both countries, labor hours. Brazil has: a. a comparative advantage in producing coffee only. Country B has comparative advantage in good X. c. Country A has comparative advantage in good X. These goods are homogeneous, meaning that consumers/producers cannot differentiate between corn or oil from either country. shift the production possibility frontier outward. Argentina has a comparative advantage in wine: – Argentina’s opp. 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. 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. <>>> B) Brazil also has an absolute advantage in the production of … 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. We would all be better off if we could reduce our dependence on oil imports. e. All of the above. 2 0 obj Producing 100 cars here costs 666 computers, while producing 100 cars in Brazil costs 1,000 computers. The Concept of Comparative Advantage (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. Ans: e 6. B Diff: 2 Topic: The Economic Basis for Trade: Comparative Advantage Skill: Conceptual AACSB: Reflective Thinking Learning Outcome: Micro-8 23. Which country has a comparative advantage in producing ethanol?Expl 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.. Question: Using The Numbers In The Table, Determine Which Country Has A Comparative Advantage In Producing Each Product. 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. Suppose Brazil has a comparative advantage over other countries in producing almonds, but other countries have an absolute advantage over Brazil in producing almonds. Brazil has the absolute advantage in producing beef and the United States has the absolute advantage in autos. 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. 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. The United States, of course, has a comparative advantage over Brazil in the production of cars. Which are the two markets represented in the circular-flow diagram? The U.S. needs to increase the minimum wage to $10 per hour. Country A has comparative advantage in good X. b. Argentina has a comparative advantage in wine: – Argentina’s opp. O A. If each country now specializes in one producing good then assuming constant returns to scale, the output will double. As it turns out, America's manufacturing sector -far from withering in the face of foreign competition - is actually thriving. Winter Term 2014 Comparative Advantage Study Questions (with Answers) Page 5 of 6 (8) a. 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. b. a comparative advantage in producing salmon only. (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. �p�8��b��ZQH�T���7|!W��f��΁;�@CieZ����u\�������r��a�n����#&�ٶ?1i�\J}��@c�>�`�m,� 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. 3. <>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 612 792] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> b. Of the following statements, which reflect(s) a normative view? x��[mo�8� ����FE�.� mv����^[܇�pPl%�Jn��~��I�4�h����Z�9�f��Ù�X���x��Ż������R���J��p~��)d�4��ps~&E Which of the following is a normative statement? b. will export almonds. Comparative advantage is when a country produces a good or service for a lower opportunity cost than other countries. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. <> Suppose that Australia and Brazil have the outputs per worker in producing sleds and clarinets shown in the table at the right. To simplify, let’s say that Saudi Arabia and the United States each have 100 worker hours (see ). 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. stream <> endobj America's comparative advantage. Output Per Hour Of Work Smartphones Fitness Bracelets 9 12 6 5 Switzerland Canada Which Of The Following Statements Is True? Answer: Brazil has an absolute advantage in coffee: – Producing a pound of coffee requires only one labor-hour in Brazil, but two in Argentina. Russia has a comparative advantage over Ireland in producing sunflower seeds, and Brazil has a comparative advantage over Russia in producing coffee. Neither Chile nor Brazil has a comparative advantage in producing coffee. One can easily see this with a simple observation of the extreme production points in the PPFs of the two countries. (Figure: Guns and Butter) This production possibility frontier is: bowed out from the origin because of increasing opportunity costs. Consider a possible production possibility frontier for Iraq. I. Coffee took an essential part of the Brazilian history. 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. Solution Paper for Which country has a comparative advantage in producing ethanol? 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. endobj Strictly speaking, these constitute economic rents rather than comparative advantage — but they still have it and most other countries do not. 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. �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��/~ If trade in almonds is allowed, Brazil d Mexico will export oranges. (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. Refer to Scenario 20.1. Then Brazil has a a. 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