Question
In: Economics
Assume the following information for the United States and Mexico. The United States can produce a...
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Assume the following information for the United States and Mexico. The United States can produce a maximum of 600 bushels of barley or a maximum of 600 bushels of corn. Mexico can produce a maximum of 200 bushels of barley or 400 bushels of corn. Which country has a comparative advantage in the production of barley? Which country has a comparative advantage in the production of Corn? Show your work for the calculation of opportunity cost. (4 Points)
Solutions
Expert Solution
Ans. 1)
The United States
The opportunity cost of Barley
600 bushels of barley = 600 bushels of corn
1 bushel of barley = 1 bushel of corn
The opportunity cost of Corn
600 bushels of corn = 600 bushels of barley
1 bushel of corn = 1 bushel of barley
Mexico
The opportunity cost of Barley
200 bushels of barley = 400 bushels of corn
1 bushel of barley = 2 bushels of corn
The opportunity cost of Corn
400 bushels of corn = 200 bushels of barley
1 bushel of corn = 0.5 bushels of barley
Since the United States has the lower opportunity cost in the production of barley ( i.e. 1 bushel of barley = 1 bushel of corn )than Mexico ( i.e. 1 bushel of barley = 2 bushels of corn ). Therefore, the United States has a comparative advantage in the production of barley.
Similarly,
Since Mexico has the lower opportunity cost in the production of corn ( i.e. 1 bushel of corn = 0.5 bushels of barley) than the United States ( i.e. 1 bushel of corn = 1 bushel of barley ). Therefore, Mexico has a comparative advantage in the production of corn.
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