Answer to Question #47711 in Macroeconomics for Aditi

Question

7. Suppose that Canada can produce 1000 tons of wheat or 500 tons of steel, and that Brazil can produce 750 tons of wheat or 1350 tons of steel.
a. What is the opportunity cost of 1 unit of wheat in Canada? Show your work.
b. What is the opportunity cost of 1 unit of steel in Brazil? Show your work.
c. Which country has a comparative advantage in producing steel? Explain why.
d. Suppose that trade takes place between Canada and Brazil. Which good will Brazil import from Canada? Explain why.

Answer 1

Canada can produce 1000 tons of wheat or 500 tons of steel
Brazil can produce 750 tons of wheat or 1350 tons of steel.
a. The opportunity cost of 1 unit of wheat in Canada is 500/1000 = 0.5 tons of steel
b. The opportunity cost of 1 unit of steel in Brazil is 750/1350 = 0.56 tons of wheet
c. Brazil has a comparative advantage in producing steel, because it has the lower opportunity cost of 1 unit of steel.
d. Ift trade takes place between Canada and Brazil, Brazil will import wheat from Canada and export steel, because it has a comparative advantage in producing steel.