Question

Brazil is leading producer of sugarcane and the United States is the leading producer of crude oil. Based on this information, why should Brazil trade with the United States?

A) Brazil has an absolute advantage in sugarcane and crude oil.
B) The United States has an absolute advantage in sugarcane and crude oil.
C) Brazil has an absolute advantage in crude oil and the United States has an absolute advantage in sugarcane.
D) Brazil has an absolute advantage in sugarcane and the United States has an absolute advantage in crude oil.

Answer 1

D) Brazil has an absolute advantage in sugarcane and the United States has an absolute advantage in crude oil.

Step-by-step explanation:

According to international trade theory, countries must specialize in the production of goods in which they have a comparative advantage over other countries. For example, if Brazil has an absolute advantage over the US in sugarcane production, it means that the country has greater sugarcane production efficiency. In turn, if the US has an absolute advantage over Brazil in oil production, it also means that the US has greater oil production efficiency. Thus, each of the countries must produce the good in which they have the absolute advantage to export it, and must import the other type of good. In this case, the US would be better off exporting oil and importing sugarcane from Brazil, and vice versa.