Does either country have an absolute advantage in the produc

Does either country have an absolute advantage in the production of wheat or beef? Explain. What is the opportunity cost of wheat in each country? What is the opportunity cost of beef in each country? Analyze comparative advantage and opportunities ofr trade between the U.S. and Argentina. Explain your answer

Solution

a) Absolute advantage goes to the more productive country, and thus U.S. is more productive in both wheat and beef and has absolute advantage in both wheat and beef

b) To produce 200 units of wheat in U.S. it should give up 100 units of beef

To produce 1 unit of wheat , 1/2 units of beef is given up

Opportunity cost of wheat in U.S = 1/2 = 0.5

Opportunity cost of wheat in Argentina = 80/20 = 4

c) Opportunity cost of beef in U.S. = 200/100 = 2

Opportunity cost of beef in Argentina = 20/80 = 1/4 = 0.25

d) Comparative advantage goes to the low opportunity cost producer. Therefore U.S. has comparative advantage in wheat and Argentina has comparative advantage in beef. U.S. can import beef and export beef to Argentina