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Textbooks / Business / Principles of Economics 6 / Chapter 3 / Problem Problems and Applications 3.8

An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce

Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw ISBN: 9780538453059 472

Solution for problem Problems and Applications 3.8 Chapter 3

Principles of Economics | 6th Edition

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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw

Principles of Economics | 6th Edition

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Problem Problems and Applications 3.8

An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and an ounce of coffee in 75 minutes. a. Who has the absolute advantage in coffee? Explain. b. Who has the comparative advantage in coffee? Explain. c. If the two countries specialize and trade with each other, who will import coffee? Explain. d. Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade

Step-by-Step Solution:

Step 1 of 2

The concept of comparative advantage has been given by the classical economist, named David Ricardo. According to him, the country will specialize, produce and export the good in which it has comparative advantage or can produce more cheaply in relative terms as compared to the other country.

Step 2 of 2

Chapter 3, Problem Problems and Applications 3.8 is Solved
Textbook: Principles of Economics
Edition: 6
Author: N. Gregory Mankiw
ISBN: 9780538453059

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An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce