Production

Question

SCENARIO: CHILE AND ARGENTINA

Chile and Argentina each produce jellybeans and peanut butter using labor as their only resource. Each country has 1,000 hours of labor. In Chile, 1 hour of labor produces 1 pound of jellybeans or 1/2 pound of peanut butter. In Argentina, 1 hour of labor produces 1 pound of jellybeans or 1/3 pound of peanut butter. When they do not trade with each other, Chile consumes 600 pounds of jellybeans and 200 pounds of peanut butter, and Argentina consumes 400 pounds of jellybeans and 200 pounds of peanut butter.

(Scenario: Chile and Argentina) Which country has a comparative advantage in jellybean production?

A) Chile

B) Argentina

C) both Argentina and Chile

D) neither Argentina nor Chile

(Scenario: Chile and Argentina) What is the price of peanut butter in Argentina before the two countries begin to trade with each other?

A) 1/3 pound of jellybeans per pound of peanut butter

B) 1/2 pound of jellybeans per pound of peanut butter

C) 2 pounds of jellybeans per pound of peanut butter

D) 3 pounds of jellybeans per pound of peanut butter

(Scenario: Chile and Argentina) In order for Chile to gain from trade, the price of jellybeans must be less than:

A) 2 pounds of peanut butter per pound of jellybeans.

B) 3 pounds of peanut butter per pound of jellybeans.

C) 0.33 pounds of peanut butter per pound of jellybeans.

D) 0.50 pounds of peanut butter per pound of jellybeans.

(Scenario: Chile and Argentina) Now suppose that the two countries begin to trade with each other. Each completely specializes in the product in which it finds its comparative advantage. How many more pounds of peanut butter and jellybeans do the two countries jointly produce compared with production before they began to trade?

A) 1,000 pounds of jellybeans and 500 pounds of peanut butter

B) 0 pounds of jellybeans and 500 pounds of peanut butter

C) 1,000 pounds of jellybeans and 0 pounds of peanut butter

D) 0 pounds of jellybeans and 100 pounds of peanut butter