Econ-Homework 5 - Robert Thomas Econ 300 Dr Chatterjee...

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Robert Thomas Econ 300 Dr. Chatterjee Homework 5 1a. Belgium has the absolute advantage in chocolate because they are able to produce 10 lbs. of chocolate using only 1 unit of resources compared to Guatemala who only produces 4 lbs. of chocolate per 1 unit of resource. In regards to coffee, Belgium also has the absolute advantage in coffee because they are able to generate 8 lbs. of coffee per 1 unit of resource compared to Guatemala’s 7 lbs. of coffee per their 1 unit of resource. 1b. Chocolate Country Chocolate Coffee Belgium 1 : 0.8 Guatemala 1 : 1.75 Since Belgium sacrificed only .8 lb. coffee to produce 1 lb. of chocolate compared to Guatemala who sacrificed 1.75 of coffee to produce 1 lb. of chocolate that gives Belgium the comparative advantage in producing chocolate. Coffee Country Coffee Chocolate Belgium 1 : 1.25 Guatemala 1 : .57 Since Guatemala sacrificed only .57 lb. of chocolate to produce 1 lb. of coffee compared to Belgium who sacrificed 1.25 of chocolate to produce 1 lb. of coffee that gives Guatemala the comparative advantage in producing coffee. Whoever has lower OC has the comparative advantage. 1c. Guatemala should produce coffee and for every 1 lb. of coffee traded, they should receive around 1 lb. of chocolate produced from Belgium. d. According to Hecksher-Ohlin, Guatemala will have the comparative advantage in coffee due to the fact that they are producing and exporting resources that they are abundant in (coffee) and importing goods that require resources that are short in supply.
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