Question 1
If the slopes of the production possibility frontiers involving sugar and rice in countries A and B are equal
◦ the opportunity cost of producing sugar is less in Country A.
◦ the opportunity cost of producing rice is less in Country B.
◦ specialization does not benefit either country.
◦ each country will produce identical quantities of sugar and rice.
Question 2
Suppose that Argentina and Chile are both engaged in the production of copper and wheat, and that Argentina has an absolute advantage in the production of both goods. If Chile has a comparative advantage in the production of copper, then Chile
◦ has a lower opportunity cost for copper, which means that it should specialize in production of copper and engage in trade.
◦ has a lower opportunity cost for producing copper, but specialization is not feasible because Argentina has a lower monetary cost of copper production.
◦ has a higher opportunity cost for copper, which means it should specialize in the production of wheat and engage in trade.
◦ should continue to produce copper, but only for domestic consumption, because trade is not a viable option.
Small copper, Binigaus, Minorca
Big Mac and Copper
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