Monday, October 4th, 2010

Test tomorrow on the first unit!!!

Answer key to the practice problem on Argentina and Peru:

1. Opp cost of beef (forego fruit) for Argentina: 1/2 fruit

Opp cost of beef (forego fruit) for Peru: 1 fruit

Opp cost of fruit (forego beef) for Argentina: 2 beef

Opp cost of fruit (forego beef) for Peru: 1 beef

Argentina has a comparative advantage in beef.  (Peru has a comparative advantage in fruit.)

2. Peru will export fruit because it exports the item for which it has a comparative advantage, and it has a comparative advantage in fruit.

3. Between 1 to 2 metric tons of beef/month.

4. Argentina has an absolute advantage in beef production because it can produce more beef with the same inputs as Peru.

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