Say Argentina and England both produce wheat and cloth. They both have 1000 units of labor....

Say Argentina and England both produce wheat and cloth. They both have 1000 units of labor. In Argentina it takes 10 units of labor to make 1 bushel of wheat and 20 units of labor to make 1 yard of cloth. In England it takes 10 units of labor to make 1 bushel of wheat and 10 units of labor to make 1 unit of cloth. What is the comparative advantage good of each country? Why? Based on this, what would we expect to see happen in Argentina regarding its exports and imports after it gained independence from Spain? What should happen to the GDP (Gross Domestic Product) of Argentina and Spain, according to this theory?

Expert Solution

Argentina has comparative advantage in wheat production because this is where they have a lower opportunity cost of production.

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Rahul Sunny answered 1 year ago

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