20 poinis 1. A n average worker in Brazil can produce an ounce of soybeans in 20
ID: 1120341 • Letter: 2
Question
20 poinis 1. A n average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in soybeans in 50 minutes and an ounce of coffee in 75 minutes. Who has an absolute advantage in coffee? Explain. Who has a comparative advantage in coffee? Explain 60 minutes, while an average worker in Peru can produce an ounce of Minutes needed to make one ounce of Coflee Soybeans 20 min. Brazil 60 min Peru 75 min50 min. Consider the following events: Scientist reveal that consumption of oranges decreases the risk of diabetes, and at the same time, farmers use a new fertilizer that makes orange trees more productive. Explain what effect these changes have on equilibrium price and quantity of oranges 2. 3. The govermment purchases component of GDP does not include spending on transfer 4. Suppose Intel is considering building a new chip-making factory. Assuming that Intel needs 5. If the price of a domestically produced Navy submarine rises, is the consumer price index or 6. Use a production possibility frontier to describe the idea of efficiency payments such as social security. Thinking about the definition of GDP, explain why transfer payments are excluded. to borrow money in the bond market, why would an increase in the interest rates affects intel's decision about whether to build the factory? the GDP deflator affected more? Explain. 7. Identify each of the following acts as representing either savings or investment Fred uses some of his income to buy government bonds. b. a. Alex purchases a new truck for his delivery business using borrowed funds. Elaine uses some of her income to buy stock in a major corporation. c. d. Henrietta hires a builder to construct a new building for her bicycle shop. 8. If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work 9. Identify each of the following as nominal or real variables The dollar price of apples. b. a. The price of apples relative to the price of oranges. c. The unemployment rate. d· The amount of goods you can purchase with the wage you get each hour. 10. Suppose that U.S. citizens start to save more. What does this imply about the supply of loanable funds and the equilibrium interest rate? Graphically illustrate. What happens to the real exchange rate?Explanation / Answer
Answer
Absolute advantage refers to the economic situation where a country has a specialization in producing the product in terms of cost and time invested in the manufacturing. Hence, in the given scenario as Brazil can produce once of coffee in 60 minutes and Peru in 75 minutes, Brazil can be said to have an absolute advantage.
Contrary to this, the comparative advantage is related to opportunity cost. Here, Brazil has an opportunity cost of 60/20=30min and opportunity cost of Peru will be 75/50 =1.5min. Hence, as Peru opportunity cost is less than the Brazil so it has a comparative advantage
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