Consider two countries, Peru and Brazil, who produce coffee and bananas. Brazil and Peru's hourly productivity are as follows:
Coffee/hour Bananas/hour
Peru 10 coffee - or - 5 bananas
Brazil 24 coffee - or - 6 bananas
a. What is Peru’s opportunity cost of producing a banana? What is Brazil’s
b. Who has the absolute advantage in coffee production? In banana production? Explain?
c. Who has the comparative advantage in coffee production? In banana production? Explain.
d. Can it benefit one or the other or both countries to specialize and engage in trade? Who? How? Please be specific.
Homework papers should have the following characteristics:
a) About one page is required, if you go a bit over that is okay but please do not try to substitute volume for content. In other words a longer paper does not necessarily boost the grade.