Brazil and Argentina are trading partners. Both countries have the same amount of resources and can produce beef and/or
coffee. The table below shows the maximum number of units of beef or coffee that can be produced by each country.
Assume constant opportunity costs in both countries.
Brazil
Argentina
Beef
20
20
Coffee
2
5
(a) Assume that prior to trade, Brazil is producing 5 units of beef and 1 unit of coffee. What can you conclude about the
use of resources in Brazil? Explain using the production possibilities curve model.
(b) Which country has the comparative advantage in the production of beef? Explain using numbers.
(c) Now assume each country specializes in the production of the good in which it has a comparative advantage, and the
terms of trade are 3 units of beef for 1 unit of coffee. Will Argentina gain from trade? Explain.
(d) Suppose the maximum production of coffee in Argentina increases. How will this affect Argentina's opportunity cost
of producing beef? Explain.
d to all parts of the question.
(e) Assume Argentina's civilian working-age population is 50 million, the labor force participation rate in Argentina is
70%, and the unemployment rate is 20%. Calculate the number of employed people in Argentina. Show your work.