Answer to Question #263478 in Economics for lyy

Question

Assuming a world with only two countries (country A and country B), producing only 2 products (rice and coffee). Country A is reported to be efficient in producing both products, where the unit labor requirement to produce a kg of rice is 1 hour of labor, while for 1 pack of coffee (500g) is 2 hours of labor. On the other hand, country B needs 8 hours of labor to produce 1 kg of rice and 2 hours of labor to produce 1 pack of coffee (500g). In this case, in your opinion, country A and B should produce and export what product? Or they should not export? Explain.

Answer 1

In this case, country A has a comparative advantage in producing rice, which it should export, and country B should produce and export coffee.