Question

Assume the following productivity data for the US, Brazil and Mexico with regard to pineapple and coffee production:                                                                      Pineapples                                          Coffee US (daily output per worker)                           30 lb                                                   15 lb Brazil (daily output per worker)                       40 lb                                                   75 lb Mexico (daily output per worker)             16 lb                                                   25 lb QUESTION 1 Apply only the theory of absolute advantage. What trade, if any, would we see between the US and Brazil? a. No trade because Brazil has the absolute advantage in both products b. Brazil will specialize in coffee and trade coffee for US pineapples c. Brazil will specialize in pineapples and trade pineapples for US coffee d. Brazil will buy both coffee and pineapples from US QUESTION 2 Apply only the theory of absolute advantage. What trade, if any, would we see between Mexico and Brazil? a. No trade because Brazil has the absolute advantage in both products b. Brazil will specialize in coffee and trade coffee for Mexican pineapples c. Brazil will specialize in pineapples and trade pineapples for Mexican coffee d. Brazil will buy both coffee and pineapples from Mexico QUESTION 3 Apply only the theory of absolute advantage. What trade, if any, would we see between Mexico and the US? a. No trade because Mexico has the absolute advantage in both products b. US will specialize in coffee and trade coffee for Mexican pineapples c. US will specialize in pineapples and trade pineapples for Mexican coffee d. No trade because US has absolute advantage in both products QUESTION 4 Now apply the theory of comparative advantage. What trade, if any, would we see between the US and Brazil? a. No trade because Brazil has the absolute advantage in both products b. Brazil will specialize in coffee and trade coffee for US pineapples c. Brazil will specialize in pineapples and trade pineapples for US coffee d. Brazil will buy both coffee and pineapples from US The U.S. Congress proposes a law imposing tariffs and quotas to block most Brazilian coffee from entering the US market. For each of the following groups, answer AGREE if you believe they would support, and be helped by, such a law. Answer DISAGREE if you believe they would oppose, and be hurt by, such a law. QUESTION 5: US coffee consumers Agree Disagree QUESTION 6: US coffee farmers Agree Disagree QUESTION 7: US pineapple farmers Agree Disagree QUESTION 8: Brazilian coffee farmers Agree Disagree QUESTION 9: Mexican coffee farmers Agree Disagree

Answer 1

QUESTION 1)

On the basis of absolute advantage, there would be no trade because Brazil has the absolute advantage in the production of both products. So option a is the correct answer.

Question 2) On the basis of absolute advantage, there would be no trade because Brazil has the absolute advantage in the production of both products. So option a is the correct answer.

Question 3) We can see that US has an absolute advantage in the production pineapples and Mexico has an absolute advantage in the production of coffee. So US would specialize in the production of pineapples and Mexico would specialize in the production of Coffee and then US will trade pineapples for Mexican coffee.So option c is the correct answer.

Question 4) Opportunity cost of producing pineapples in Brazil = 75/40 coffee.

Opportunity cost of producing pineapples in US = 15/30 = 0.5 coffee.

So we can see that US has a comparative advantage in the production of pineapples because the opportunity cost of producing pineapples in US is less than that of Brazil and Brazil has a comparative advantage in the production of coffee. So, Brazil will specialize in coffee and trade coffee for US pineapples. So option b is the correct answer.