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Author Question: According to the table above determine which country has the absolute advantage in corn and which in ... (Read 63 times)

WWatsford

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on: Jun 29, 2018
According to the table above determine which country has the absolute advantage in corn and which in soybeans. In addition, determine which country has the comparative advantage in corn and which in soybeans.
 
  Make sure to support your answer by deriving the opportunity costs of each.

Question 2

The supply of loanable funds has a ________ slope because the greater the interest rate, the ________ the reward to saving, and the ________ the quantity of loanable funds supplied.
 
  A) positive; lesser; lesser B) negative; lesser; greater
  C) positive; greater; lesser D) positive; greater; greater


meganlapinski

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Canada has the absolute advantage in the production of corn and Mexico has the absolute advantage in the production of soybeans. In addition, Canada also has a comparative advantage in the production of corn and Mexico has a comparative advantage in the production of soybeans. The reason is that the opportunity cost of corn in Canada is  of a soybean while in Mexico the opportunity cost of corn is 5 soybeans. By taking the reciprocal of each the opportunity costs of soybean are 4 corn for Canada and 1/5 corn for Mexico.

Answer to Question 2

D


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