Question

Use the information in the table on labor productivities of wheat and bananas in Argentina and Costa Rica to answer all questions in a) through e).

	Output per Hour Worked
	Costa Rica	Argentina
Bananas	5 tons	3 tons
Wheat	1 ton	3 tons

b) What is the relative price of bananas in Costa Rica if it does not trade? In Argentina?

So for this I assume Costa Rica is 5/1 = 5 tons of wheat but is that right? I don't think I'm understand how to make these calculations. Would argentina be 3/3 which equals 1 ton of wheat?

c) Opportunity cost of wheat in Costa Rica? In Argentina?

d) Which country has a comparative advantage in bananas? In wheat? Explain your answer.

e) What are the upper and lower bounds for the trade price of wheat?

Answer 1

b) Costa Rica
Price of banana = 1/5 tons of wheat

Argentina
Price of banana = 3/3 = 1 ton of wheat

c)Opportunity cost of wheat
Costa Rica: 5 bananas
Argentina: 3/3 = 1 banana

d) Bananas: Costa Rica
Opportunity cost of bananas in Costa Rica is 1/5ton of wheat whereas in Argentina it is 1ton wheat.

Wheat: Argentina
Opportunity cost of wheat in Argentina is 1 banana whereas it is 5 bananas in Costa Rica

e) Lower bound: 1 banana for 1 wheat
Upper bound: 5 bananas for 1 wheat