Question

Brazil can produce 1 unit of sugarcane with 1 unit of labor and 1 iPod with 8 units of labor, and China can produce 1 unit of sugarcane with 2 units of labor and 1 iPod with 4 units of labor. Which of the following is TRUE?

a. Before trade, China's opportunity cost of one unit of sugar cane is two iPods.
b. China has an absolute advantage in sugar cane production.
c. Both parties benefit if they specialize and trade at terms of one unit of sugar cane for two iPods.
d. With trade, Brazil should specialize in sugar cane and China in iPods.

Answer 1

Answer:

d. With trade, Brazil should specialize in sugar cane and China in iPods.

Explanation:

As from the given situation it can be seen that Brazil has an absolute advantage while producing the sugarcane as it takes one unit of labor for generating one unit of sugarcane

On the other hand, china has an absolute advantage for generating an ipod as it takes four unit of labor to generate one ipod

Therefore the option d is correct