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QUESTION 4 2 points Save Answer .u An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 80 minutes and an ounce of coffee in 120 minutes. Who has absolute advantage in coffee? Brazil Peru O Neither country.

Answer 1

1. Brazil has an absolute advantage in coffee because it takes lesser time in its production. (60 minutes < 120 minutes)

2. Peru has a comparative advantage in producing coffee because of the lower opportunity cost of coffee in terms of soyabean.

Peru has opportunity cost of coffee is 3/2 of soyabean, as compared to Brazil whose opportunity cost is 3.

(Opportunity cost is calculated simply by dividing the time taken to produce an ounce of coffee by that of soyabean)

3. Since Peru has comparative advantage in producing coffee, it will export coffee. Hence Brazil will be importing coffee.

4. Since opportunity cost of coffee for Peru is 3/2 of soyabean, the terms of trade should be less than that. The only option is 1lb. of coffee for 1 lb. of soyabeans.