In Brazil, one worker can make 5 tons of steel or 80 computers. In France, one...

In Brazil, one worker can make 5 tons of steel or 80 computers. In France, one worker can make 10 tons of steel or 40 computers.
a. Which country has the absolute advantage in the production of steel? In computers? How can you tell.
b. Calculate the opportunity cost of producing 80 additional computers in Brazil and in France. (Your calculations may involve fractions).
c. Which country has a comparative advantage in steel? In computers? How did you figure this out?
d. In what product should each country specialize and why?
e. Describe acceptable terms of trade (gains from trade) for each nation.

Solutions

Expert Solution

Each worker in

Brazil: 5 tons of steel or 80 computers.

France: 10 tons of steel or 40 computers.

a. Brazil has absolute advantage in Computers and France has it in steel as each labor in Brazil is more productive for Computers and Steel in France.

b.Additional 80 means 160 computers in Brazil and 80 in France:

To calculate opportunity cost of any good comparing other good take it to denominator

Hence for Brazil: 5/160= 0.031

For France: 10/80 = 0.125

c. Brazil has low opportunity cost in making computers and France has low opportunity cost in making Steel.

Calculations: For Brazil

Steel: 80/5= 16 and Computers: 5/80= 0.0625

For France : Steel: 40/10= 4 and computers: 10/40 =0.25

A country should specialize in good in which it has low opportunity cost.

d. Brazil has low opportunity cost in making computers and France has low opportunity cost in making Steel. Brazil to focus on Computers and France on steel.

e. 1 tonne of steel to be traded for 8 computers. It will make 12 steels available with France, 8 with Brazil.

64 computers with France and 96 with Brazil. Making both better off.

Rahul Sunny answered 1 year ago

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