Question

Question Completion Status: Moving to another question will save this response Question 25 points Assume that Braril and Chile can switch between producing beef and producing wheat at a constant rate. The following table shows the pounds of beef or the bushels of wheat each country can produce hour. Output produced in one hour bushels of wheat pounds of beef Brazil 12 10 Chile 20 12 Which of the following prices would both Brazil and Chile gain from trade with each other? 6 bushels of wheat for 3 pounds of beef. 6 bushels of wheat for 6 pounds of beef. 6 bushels of wheat for 4 pounds of beef 6 bushels of wheat for 5 pounds of beef Moving to another question will save this response. otv MacBook Pro 30 F2 DOO 000 F 00 DIL

Answer 1

Answer:

1. 6 bushels of wheat for 6 pounds of beef.

reason: Brazil's opportunity cost of producing a bushel of wheat = 0.6 pounds of beef

Brazil's opportunity cost of producing a pound of beef = 1.2 bushels of wheat

Chile's opportunity cost of producing a bushel of wheat = 1.6 pounds of beef

Chile's opportunity cost of producing a pound of beef =0.83 bushel of wheat.

Thus the trade between Brazil and Chile will be thus: Brazil will be willng to sell 1 bushel of wheat for greater than 0.6 pounds of beef and Chile will buy for less than 1.6 pounds of beef. Out of the given options, (6 bushels of wheat for 6 pounds of beef) fits into this range.

2. neither good and Chile has an absolute advantage in the rpoduction of both the goods.

reason: Chile can produce more of both the gods in one hour compared to Brazil. So, Chile has absolute advantage inthe production of both the goods.

3. wheat; and Chile should specialize in the production of beef.

reason: The opportunity cost of producing wheat is lower in Brazil than in Chile (0.6 ponds of beef in Brazil; 1.6 pounds of beef in Chile - for one bushel of wheat). While the opportunity cost of producing beef is lower in Chile compared to Brazil (0.83 bushels of wheat in Chile and 1.2 bushels of wheat in Brazil - for one poiund of beef). So each country should specialize in the production of those goods for whch they have less opportunity cost.