Scenario 34

question 15

Multiple Choice

Scenario 34.1 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 34.1.Which of the following statements is true?

• A)Brazil has a comparative advantage in producing coffee.
• B)Brazil has a comparative advantage in producing both coffee and sugar.
• C)Chile has a comparative advantage in producing both coffee and sugar.
• D)Neither Chile nor Brazil has a comparative advantage in producing coffee.
• E)Brazil has a comparative advantage in producing sugar.

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Definitions:

Price

The quantity of money presumed, demanded, or presented in exchange for a product.

Income

The total earnings obtained by an individual or entity from various sources, including work, investments, and transfers, over a specific period.

Budget Line

A visual schematic of all possible pairings of two items that are purchasable with a predetermined budget at stable prices.

Utility Function

A mathematical representation of how individual preferences can be quantified in terms of utility, reflecting satisfaction or happiness from consuming goods or services.