Question

Argentina and Peru have the capability to produce beef and copper.

If Argentina devotes all of its resources to producing one product, it can produce 20 pounds of beef and no copper, or 20 pounds of copper and no beef

If Peru devotes all of its resources to producing one product, it can produce 10 pounds of beef and no copper, or 30 pounds of copper and no beef.

The PPF for each country appears below

Assume the following occurs:

• Each country devotes all their resources to produce the good it has a comparative advantage
• Each country consumes only 50% of what it produces and trades the remainder to the other country under a "free trade" agreement

Based on all of this information, answer the following questions (just answer the question - no explanation required):

1. Which product should Argentina produce?
2. Which product should Peru produce?
3. After producing and trading, Argentina will be able to consume a basket of _______ pounds of beef and _______ pounds of copper
4. After producing and trading, Peru will be able to consume a basket of _______ pounds of beef and _______ pounds of copper

Answer 1

Peru opporutnity cost of producing Beef = 30 / 10 = 3 pounds of Copper .

peru opportunity cost of producing Copper = 10 / 30 = 0.33 pounds of beef.

So, Peru has comparative advantage in producing Copper .so Peru will produce Copper.

and Argentina has opportunity cost equal to 1 in producing any good. so he will produce Beer if he enages in free trade.

A) Argentina will produce Beer.

b) Peru will Produce Copper.

c) After producing and trading, Argentina will be able to consume a basket of 10 pounds of beef and 15 pounds of copper

d) After producing and trading, Peru will be able to consume a basket of 10 pounds of beef and 15 pounds of copper.

because ( Argentina is producing only 20 pounds of Beer and and out of which 50% he is trading , therefore he is consuming only 10 pounds of beer and peru produce Copper 30 pounds and out fo which 50% in trade, therefore he only consume 15 pounds of copper. )