Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
8th Edition
ISBN: 9780134641843
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
Question
Chapter 9, Problem 1SPPA
To determine

To find: the country which has comparative advantage and the country which gains from international trade.

Expert Solution & Answer
Check Mark

Explanation of Solution

The graph for Brazil's shoe market shows the lower price of shoes and high quantity as compared to the U.S. shoe market. Hence, Brazil has a comparative advantage in the manufacturing of shoes.

Brazil would export the shoes which would increase the shoe's supply in the U.S. market and consequently, the price of shoes in the U.S. market will decrease.

The production of shoes by the U.S. producers has a high opportunity cost and Brazil has a lower opportunity cost. Hence, Brazil would gain from export and the U.S would have gained from import.

Economics Concept Introduction

Trade:

Trade is an economic activity which includes the buying and selling of goods and services. Under the trade process, compensation is paid by buyer to the sellers in the form of currency.

Opportunity cost:

The opportunity cost is the cost of using the next best alternative. For example, harvesting with manual labor is replaced by harvesting with machinery. Hence, the opportunity cost of using machinery is the cost of manual labor forgone.

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Students have asked these similar questions
Table 1 shows the production possibilities for the USA and Mexico.                                                                                               Table 1   Output per hour worked Country Computers Shoes USA 3 6 pairs Mexico 1 3 Based on Table 1, which country or countries has an absolute advantage and a comparative advantage in shoes? Group of answer choices Mexico has an absolute and comparative advantage in shoes. The United States has a comparative advantage, and Mexico has an absolute advantage in shoes. Mexico has a comparative advantage, and the United States has an absolute advantage in shoes. There is not enough information to tell.
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