Assume that there are two countries in the world, Brazil and India, and they can
ID: 1148587 • Letter: A
Question
Assume that there are two countries in the world, Brazil and India, and they can produce two goods, Coffee and Tea. The following table tells us the maximum amount that each country can produce if they only produce that good (they are the end points of the PPP) Assume that each country has resources that are identical in production Brazil India Coffee 600 Tea 200 250 . if each country likes tea and coffee equally, and they do not trade, how much of each good is consumed and produced in each country? What is world output for each good? Coffee Tea Brazil India World 2. Who has the absolute advantage in coffee production? 3. Who has the absolute advantage in tea production? 4. Calculate Brazil's opportunity cost of producing coffee in terms of tea. Round to two decimal p +1 coffee = 5. Calculate Brazi's opportunity cost of producing tea in terms of coffe +1 tea 6. Calculate India's opportunity cost of producing coffee in terms of tea +1 coffee = . 7. Calculate India's opportunity cost of producing tea in terms of coffee +1 tea 8 who has the absolute advantage in coffee production? 9. Who has the absolute advantage in tea production? 10. If the two countries decide to trade. fill in the production with trade ta coffee tea coffee Coffee Brazil India World What are the offee ea rom trade 12. What are the consumption levels after trade? Assume that the two countries split the gains from trade equally Coffee ea Brazil IndiaExplanation / Answer
1) when both countries like tea and coffee equally then Brazil will 150 units of both tea and coffee whereas India should make 167 unitsbof tea and coffee. Thus world production is 317 each tea and coffee.
2)Brazil has absolute advantage because Brazil can make more of coffee
3)India has absolute advantage in tea
4)Brazil opp. Cost of making coffee=200/600=1/3=0.33tea
5)Brazil opp. Cost of making tea=600/200=3coffee
6)India opp. Cost of coffee=0.5tea
7)India opp. Cost of tea=2coffee