Question

Use the following information to answer this question and the next three questions: Assume that Mexico and Brazil are the only two countries in the world and they produce soybeans and avocados.

Mexico 150 million hours of labor per month

5 hours to produce

1 pound of soybeans

3 hours to produce

1 pound of avocados

Brazil 300 million hours of labor per month

1 hours to produce

1 pound of soybeans

3 hours to produce

1 pound of avocados

Question: For each good, state and explain which country has the absolute advantage.

Answer 1

For absolute advantage in any good that country will have the absolute advantage which has lower labour hour requirement to produce that good.

Mexico takes 5 labour hours to produce 1 pound of soyabean while Brazil takes 1 labour hour to produce 1 pound of soyabean. Since, Labour Requirement of Brazil is less than that of Mexico, Brazil has an absolute advantage in producing Soyabean.

Mexico and Brazil both takes 3 labour hours to produce 1 pound of avocados. Since labour Requirement of Mexico and Brazil is equal to produce 1 pound of avocados, Neither Mexico nor Brazil have the absolute advantage in the production of Avocados.