Question

Please answer the questions below based on the data provided: Argentina, 10,000 hours of labor/month: –Producing 1 pound coffee requires 2 hours –Producing one bottle wine requires 4 hours Brazil, 10,000 hours of labor/month: –Producing 1 pound coffee requires 1 hour –Producing one bottle wine requires 5 hours Which country has an absolute advantage in the production of coffee? Why? Complete an opportunity cost matrix, and determine the country with a comparative advantage in coffee and then wine. What is the potential range of the terms of trade with respect to the exchange between coffee and wine? Why is it within the range?

Answer 1

Sooo 4 » Total = 10,000 hours Argentina - 1 Coffee in 2lors :. In 10,000 lors = tx Togooo = 15,000 Coffee 4 hus 1 Wine & 10,000 hrs 1 x T0,000 = +2.500 - 12500 Wire 12 Brazil 1 kr – 1 Coffee 10,000 chr 110,ooo Coffee / Silas 1 wire 2000 10,000 has 1 x TO,000 = 2000 wine Absoalute Advantage :- Coffee Berg Brazil (19000 7 500) Wine - Argentina (2500/2000) to the country which produces more has AA & which produces more opportunity cost matrixt Coffee Wine Argentina 2500 - 12W Bare rell W = Wine it c = Coffee Brazil 10, 20 507 2000

CA :- In co Coffee Brazil ( į < ) In wire Argentina (2<5). (The country which has lower opportunity Cost (oc) has comparative Advantage (CA)) Potential Range : ween naye Coffee 1 unit exchange between 2 were & 1 Wine Wine 1 unit exclage between 2 сар 5 седес [1 wine for 3 Coffee Z . [1 Coffee for 0.3 kline 7s Ang of trade 7 3 line