Question

Assume three

2. Critical Thinking: Assume three trade partners: the U.S., China, and Brazil. The following information represents 2019 production estimates gathered from Index Mundi and World Atlas. The U.S. can produce 347 million tons of com, 117 million tons of soybeans, and 20 million tons of chicken meat. China can produce 254 million tons of com, 12 million tons of soybeans, and 16 million tons of chicken meat. Brazil can produce 101 million tons of com, 96 million tons of soybeans, and 14 tons of chicken meat. (4 points) a. Given the above information which country rives up the least com per (i.e. the lowest opportunity cost) when producing soybeans and what is their calculated per unit opportunity cost. b. Assume that country with the lowest opportunity cost for soybeans from part a will now only produce soybeans. The two remaining countries must now decide on the production of com and chicken. If they follow the theory of comparative advantage, which country will produce corn, and which will produce chicken. Provide at least one comparative advantage calculation comparison to justify your answer. 3. Graphically show the market for foreign exchange per dollar for each of the following situations, noting on the graph when the USD appreciated or depreciated: (separate graphs 1 points each)

Answer 1

a) To make a million ton of soyabean, units of corn sacrificed (the opportunity cost) is given by dividing units of corn produced by units of soyabean produced:

US= 347/117=2.96

China= 254/12=21.16

Brazil= 101/96=1.05

So, US gives up 2.96 units, China gives up 21.16 units and Brazil gives up 1.05 units of corn to produce 1 unit of soyabean. So, Brazil gives up least corn

b) Now between US and China, we check which country will give up least amount of corn to produce a unit of meat:

US= 347/20=17.35

China= 254/16=15.8

o, China gives up least amount of corn to produce a unit of meat. So, according to the comparative advantage theory, China produces meat and US produces corn

c) Demand for foreign exchange per dollar will rise in case of soyabean and meat, because we will need to import them. So, dollar depreciates. But, supply for foreign exchange per dollar increases because we export corn, so dollar appreciates. This is shown in below graphs:

Exchange Exchange rate Exchange Tati pering rate! Quantity forex pers Quantity (for ) per $ Qurant (forex) per & Meat Soyabean (Depriciates) Corn (Depreciates) (Appreciates)

In graphs, E shows initial exchange rate, E* is new exchange rate after trade, S is supply curve of foreign exchange per dollar and D is demand curve for foreign exchange per dollar.