Argentina and Brazil are considering the potential gains of trade. There is only one factor of production: labor. There are only two goods being produced in either economy: coffee and wine. Argentina can employ 10,000 hours of labor per month. Producing 1 lb. of coffee requires 2 hours of labor, and producing 1 bottle of wine requires 4 hours of labor, in Argentina. Similarly, Brazil can employ 10,000 hours of labor per month. Producing 1 lb. of coffee requires 1 hour of labor, and producing 1 bottle of wine requires 5 hours of labor, in Brazil. A). Which country has an absolute advantage in the production of coffee? B). Which country has an absolute advantage in the production of wine? C). Draw the Production Possibilities Frontier for the two countries.
Argentina and Brazil are considering the potential gains of trade. There is only one factor of production: labor. There are only two goods being produced in either economy: coffee and wine. Argentina can employ 10,000 hours of labor per month. Producing 1 lb. of coffee requires 2 hours of labor, and producing 1 bottle of wine requires 4 hours of labor, in Argentina. Similarly, Brazil can employ 10,000 hours of labor per month. Producing 1 lb. of coffee requires 1 hour of labor, and producing 1 bottle of wine requires 5 hours of labor, in Brazil. A). Which country has an absolute advantage in the production of coffee? B). Which country has an absolute advantage in the production of wine? C). Draw the Production Possibilities Frontier for the two countries.
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 1CQQ
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