Scenario 20.1 Suppose labor productivity differences are the only determinants o

Question

Scenario 20.1 Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar.

22. Refer to Scenario 20.1. Which of the following statements is true? a. Brazil has an absolute advantage in producing only coffee. b. Brazil has an absolute advantage in producing only sugar. c. Chile has an absolute advantage in the production of both coffee and sugar. d. Chile has an absolute advantage in producing only coffee. e. Brazil has an absolute advantage in the production of both coffee and sugar.

23. Refer to Scenario 20.1. Which of the following statements is true? a. Brazil has a comparative advantage in producing coffee. b. Brazil has a comparative advantage in producing both coffee and sugar. c. Chile has a comparative advantage in producing both coffee and sugar. d. Neither Chile nor Brazil has a comparative advantage in producing coffee. e. Brazil has a comparative advantage in producing sugar.

24. The terms of trade is defined as: a. the quantity of inputs sacrificed to produce each unit of a good. b. the quantity of one good that is exchanged for a quantity of another good. c. the ratio of the total cost of production of individual traders. d. the marginal cost of producing one good as a percentage of the marginal cost of another good. e. the ratio of total exports of a nation to its total production.

25. According to Table 20.2, Australia has an: a. absolute advantage in the production of only food. b. absolute advantage in the production of both food and computers. c. absolute disadvantage in the production of both food and computers. d. absolute advantage in the production of only computers. e. absolute disadvantage in the production of food.

Explanation / Answer

22. Which of the following statements is true? c. Chile has an absolute advantage in the production of both coffee and sugar.

(Reason: It has higher production of both coffee and sugar than Brazil)

23. Which of the following statements is true? a. Brazil has a comparative advantage in producing coffee.

(Reason: because of lower opportunity cost)

24. The terms of trade is defined as: b. the quantity of one good that is exchanged for a quantity of another good.

25. According to Table 20.2, Australia has an: table 20.2 missing

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