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Chapter 2: Problem 9

If Nicaragua can produce with the same amount of resources twice as much coffee as Colombia, explain how Colombia could have a comparative advantage in producing coffee.

Short Answer

Expert verified
Colombia could have a comparative advantage in producing coffee if its opportunity cost of producing coffee is less than Nicaragua's, even if Nicaragua can produce more coffee.

Step by step solution

01

Identify Opportunity Cost for Each Country

Suppose that for the same amount of resources, Nicaragua can produce either twice as much coffee or some amount of another good, let's call it Good A. Similarly, Colombia can produce some amount of coffee or some amount of Good B. The opportunity cost of producing coffee in each country is what is given up to do so, which is the ability to produce the other good.
02

Compare Opportunity Costs

Suppose that producing a unit of Good A in Nicaragua costs a lot of resources, so the opportunity cost of producing coffee is high. In contrast, suppose that in Colombia, the resources could have been used to produce a high quantity of Good B. This means that Colombia has sacrificed less to produce coffee than what Nicaragua would have sacrificed.
03

Determine Comparative Advantage

Despite Nicaragua being able to produce more coffee, Colombia has a comparative advantage if its opportunity cost of producing coffee is less than Nicaragua's. This is because it sacrifices less in terms of other potential production to produce coffee.

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