00:01
So here we're given some interesting information on the cost of production, right? so soybeans take 20 minutes in brazil, and brazil produces coffee an ounce per 60 minutes, but in peru, soybeans and coffee take longer and produce, 50 and 75 minutes in particular.
00:20
So for both goods, brazil has absolute advantage, right? that means they have lower costs of production.
00:30
More efficient.
00:32
They can produce both commodities at a lower price.
00:34
In brazil, you need 20 minutes of labor.
00:37
In peru, you need 50 for soybeans.
00:38
And again, brazil is 60 in coffee, which is faster, more efficient, cheaper than peru.
00:46
Right.
00:47
So brazil has an absolute advantage in coffee, but also in soybeans as well.
00:52
Comparative advantage is somewhere different, right? because comparative advantage relies on the idea of relative costs.
00:59
Look at brazil, right? in brazil, you can produce the trade -off is three soy is for one coffee, right? harvesting three ounces of soybeans or three units of soybeans takes one hour, 60 minutes, and harvesting one unit of coffee takes 60 minutes.
01:20
But for peru, the trade -off is 1 .5 soy for one coffee, right? because for the 75 minutes it takes to harvest coffee, you can harvest only 1 .5 units of soybeans, right? so from that perspective, peru has comparative advantage in coffee because the relative cost is lower.
01:50
When peru decides to produce coffee, it gives up 1 .5 soy.
01:55
When brazil produces coffee, it gives up three soy twice as much.
01:59
So peru actually has comparative advantage in coffee.
02:04
So in coffee.
02:06
So if people trade, right? what should happen in trade is that peru sells coffee for soybeans, right, from brazil...