Question

Suppose Brazil has a comparative advantage in coffee production and Mexico has a comparative advantage in tomato production. If these two countries specialize and trade, which of the following is true?
A. Brazilian tomato producers are worse off.
B. Brazilian coffee producers are worse off.
C. Mexican tomato producers are worse off.
D. Mexican coffee producers are better off.

Answer 1

Answer:

The correct answer is A. Brazilian tomato producers are worse off.

Explanation:

A country has a comparative advantage in producing a good and service if its opportunity cost of producing that good and service is lower than that of its trading partner. So it is better off for a country that has a lower opportunity cost in production a good or service to specialise in that good or service.

Brazil has a comparative advantage in coffee production, meaning, it is better off in specialising in the production of coffee and will be worse off if Brazil specialises in Tomato

Mexico has a comparative advantage is Tomato, meaning, she is better off in specialising in Tomato and worse off if she specialises in Coffee