Question

If Brazil gives up 3 automobiles for each ton of coffee it produces, while Peru gives up 7 automobiles for each ton of coffee it produces, then: A)Brazil has a comparative advantage in automobile production and should specialize in coffee. B)Brazil has a comparative advantage in coffee production and should specialize in the production of automobiles. C)Brazil has a comparative advantage in coffee production and should specialize in coffee production. D)Brazil has a comparative advantage in automobile production and should specialize in automobile production

Answer 1

The correct answer is option C.

Step-by-step explanation:

The opportunity cost for producing a ton of coffee for Brazil is

= 3 automobiles

The opportunity cost for producing a ton of coffee for Peru is

= 7 automobiles

We see that Brazil has a lower opportunity cost in the production of coffee as compared to Peru.

A country is considered to be having a comparative advantage in the production of a good if it can produce it at a lower opportunity cost.

Here, we can say that Brazil has a comparative advantage in the production of coffee and should specialize in coffee production.