Comparative Advantage
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Comparative Advantage-Brazil
Penny Breslin
ECONGM-561
Due: September 1, 2010
Dr. George K. Sharghi
Comparative advantage determines whether it pays to produce a good or import it. Using the Ricardian model as defined in the text (Gerber, 2008) for this class I compare the comparative advantage of Brazil in the United States on the production of cars versus computers. In this description we have two countries and two goods. The assumed productive resources are combined and include land, labor and capital.
The US can produce 100 cars for every two (2) productive resources. Brazil, on the other hand requires four (4) production resources for every 100 cars produced. In the area of computers the US requires three (3) production resources for every 1000 computers created and Brazil requires four (4). Although the US has an absolute advantage over Brazil in both of these goods in truth it costs more to produce the computers in the US as compared to the costs in Brazil. If sees this as an opportunity cost for every 100 cars the US produces it loses the production of 666 computers. Brazil has an opportunity cost of 1000 computers for every 100 cars produced. In this scenario Brazil is better if it produces computers and the US is better if it produces cars. In an import export scenario Brazil comparative advantage is to produce computers and sell them to the US whereas the US produces cars and sells them to Brazil. The trade between the two countries if they...
Penny Breslin
ECONGM-561
Due: September 1, 2010
Dr. George K. Sharghi
Comparative advantage determines whether it pays to produce a good or import it. Using the Ricardian model as defined in the text (Gerber, 2008) for this class I compare the comparative advantage of Brazil in the United States on the production of cars versus computers. In this description we have two countries and two goods. The assumed productive resources are combined and include land, labor and capital.
The US can produce 100 cars for every two (2) productive resources. Brazil, on the other hand requires four (4) production resources for every 100 cars produced. In the area of computers the US requires three (3) production resources for every 1000 computers created and Brazil requires four (4). Although the US has an absolute advantage over Brazil in both of these goods in truth it costs more to produce the computers in the US as compared to the costs in Brazil. If sees this as an opportunity cost for every 100 cars the US produces it loses the production of 666 computers. Brazil has an opportunity cost of 1000 computers for every 100 cars produced. In this scenario Brazil is better if it produces computers and the US is better if it produces cars. In an import export scenario Brazil comparative advantage is to produce computers and sell them to the US whereas the US produces cars and sells them to Brazil. The trade between the two countries if they...