Answered: Assume that country A can use its…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 2SCQ: Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40...

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Assume that country A can use its resources to produce 320 computers or 320,000 books, while country B can produce 16 computers or 32,000 books. Can we determine which country has an absolute advantage in producing computers? Who has the comparative advantage in producing computers? Draw the possibility frontiers for both countries and find their slopes. In the case the two countries trade, which country exports what? Show graphically if country A benefits from trade.

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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