Question

1. In Mexico, a worker can produce 80 bushels of corn or 20 bags of coffee. In Costa Rica, a worker can produce 10 bushels of corn or 60 bags of coffee.

A. Who has comparative advantage for corn and who has comparative advantage for coffee.

2. suppose before trade occurs, each country has 10 workers and produces the values given in the following table:

Country	Corn production (bushels)	Coffee production (bags)
Mexico	400	100
Costa Rica	50	300

Then, with a push toward specialization and trade, the countries change production to the following table:

Country	Corn production (bushels)	Coffee production (bags)
Mexico	640	40
Costa Rica	20	480

A. The Mexican economy, after specialization, will benefit if it: Exports No more than ___ and Imports no more than __

B. The Costa Rica economy, after specialization will benefit if it: Exports No more than ___ and imports no more than __.

Answer 1

1) Opportunity cost of producing 1 bag of coffee (Costa Rica) = 10/60 = 1/6 bushels of corn

Opportunity cost of producing 1 bag of coffee (Mexico) = 80/20 = 4 bushels of corn

Mexico has a comparative advantage in production of corn while Costa Rica has a comparative advantage in production of coffee (lower opportunity cost)

2)

After trade:

A. The Mexican economy, after specialization, will benefit if it: Exports No more than 240 bushels of corn (= 640 - 400) and Imports more than 60 bags of coffee (= 100 - 40)

B. The Costa Rica economy, after specialization will benefit if it: Exports No more than 180 bags of coffee (= 480 - 300) and imports more than 30 bushels of corn ( = 50 - 20).