Author Question: Assume that Colombia can produce 1,000 pounds of coffee in one day or produce 200 pounds of bananas ... (Read 127 times)

imanialler · **on:** Jun 30, 2018

Assume that Colombia can produce 1,000 pounds of coffee in one day or produce 200 pounds of bananas in one day. In addition, assume that Ecuador can produce 300 pounds of coffee in one day or produce 100 pounds of bananas in one day. Which country has the comparative advantage in coffee and which has the comparative advantage in bananas? Determine a pattern of trade regarding these countries and these goods that would benefit both countries.

Question 2

If population is expanding at the same rate as a country's real output:
a. real per capita output would increase.
b. real per capita output would remain unchanged.
c. the production possibilities curve for the country as a whole will be shifting outward.
d. both (b) and (c) would be true.

mirabriestensky · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Colombia has the comparative advantage in coffee because its opportunity cost of one pound of coffee is only 0.2 pounds of bananas while Ecuador's is 0.33 pounds of bananas. Ecuador has the comparative advantage in bananas because its opportunity cost of one pound of bananas is only three pounds of coffee while Colombia's is five pounds of bananas. If Ecuador traded one pound of bananas to Colombia for between three and five pounds of coffee, both countries could enjoy greater consumption and be better off.

Answer to Question 2

d