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Use the information in the table below to answer the following questions
Use the information in the table below to answer the following questions.
production per unit of labor
| U.S. | Argentina | |
|---|---|---|
| wheat | 300 | 20 |
| beef | 100 | 20 |
(a) Does either country have an absolute advantage in the production of wheat or beef? Explain.
(b) What is the opportunity cost of wheat in each country?
(c) What is the opportunity cost of beef in each country?
(d) Analyze comparative advantage and opportunities for trade between the U.S. and Argentina
Expert Solution
a. The U.S. has an absolute advantage in the production of wheat and beer. It is able to a larger volume of both than Argentina.
b. The opportunity cost of wheat in the U.S. is 1/3 and the opportunity cost of wheat in Argentina is 1.
c. The opportunity cost of beef in the U.S. is 3 and the opportunity cost of beef in Argentina is 1.
d. The U.S. has a lower opportunity cost of wheat than Argentina so the U.S. has a comparative advantage in Wheat and Argentina has a comparative advantage in beef for the same reason. This means that the U.S. will trade Wheat and Argentina will trade beef with each other.
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