Scenario 20.1 Suppose Labor Productivity Differences Are the Only Determinants of Comparative

question 70

Multiple Choice

Scenario 20.1
Suppose labor productivity differences are the only determinants of comparative advantage, and Brazil and Chile both produce only coffee and sugar. In Chile, either 5 units of coffee or 2 units of sugar can be produced in one day. In Brazil, a day of labor produces either 2 units of coffee or 1 unit of sugar.
-Refer to Scenario 20.1. Which of the following statements is true?

• A)Brazil has an absolute advantage in producing only coffee.
• B)Brazil has an absolute advantage in producing only sugar.
• C)Chile has an absolute advantage in the production of both coffee and sugar.
• D)Chile has an absolute advantage in producing only coffee.
• E)Brazil has an absolute advantage in the production of both coffee and sugar.

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Definitions:

ROE

Return on Equity, a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Repurchase Shares

The act of a company buying back its own shares from the marketplace, reducing the amount of outstanding stock.

Debt-Equity Ratio

A ratio showcasing the relative utilization of debt and equity in the financial structuring of a company’s assets.

Required Return

The minimum expected return by an investor for investing in a particular security or project, considering the risk associated with the investment.