Suppose That in Colombia One Unit of Labor Can Produce

question 16

Multiple Choice

Suppose that in Colombia one unit of labor can produce 8 tons of papayas or 2 tons of bananas and in Brazil, one unit of labor can produce either 2 tons of papayas or 4 tons of bananas. If each country has two units of labor, which of the following consumption combinations can be attained only with trade?

• A) Brazil consumes 8 tons of bananas and no papayas.
• B) Colombia consumes 16 tons of papayas and no bananas.
• C) Brazil consumes 2 tons of papayas and 4 tons of bananas.
• D) Colombia consumes 8 tons of papayas and 4 tons of bananas.

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Definitions:

Inventory Purchase

The process of acquiring goods that a company will sell to customers or use in the production of goods to be sold.

Forward Contract

A financial derivative that represents an agreement to buy or sell an asset at a pre-agreed future point in time at a specified price.

Spot Rate

The current exchange rate at which a currency can be bought or sold for immediate delivery.

Settlement Date

The date on which a trade is finalized, and the buyer must make payment and the seller deliver the asset.