In Samoa the opportunity cost of producing 1 coconut is 4 pineapples, while in Guam the opportunity cost of producing 1 coconut is 5 pineapples. In this situation:
a. if trade occurs, both countries will be able to consume beyond their original production possibilities frontiers.
b. Guam will be better off if it exports coconuts and imports pineapples.
c. both Samoa and Guam will be better off if Samoa produces both coconuts and pineapples.
d. mutually beneficial trade cannot occur.
Question 2
Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar. Which of the following statements is true?
a. Brazil has a comparative advantage in producing coffee.
b. Brazil has a comparative advantage in producing both coffee and sugar.
c. Chile has a comparative advantage in producing both coffee and sugar.
d. Neither Chile nor Brazil has a comparative advantage in producing coffee.
e. Brazil has a comparative advantage in producing sugar.
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