Suppose that an hour of work in Brazil can produce 1 pound of coffee or 4 pounds of sugar. In Colombia, an hour of work produces 2 pounds of coffee or 5 pounds of sugar.  Which country has the absolute advantage in coffee? In sugar?  Calculate the opportunity cost of each good in each country.  Which country has the comparative advantage in each good? Why?

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.