00:01
Hey everyone, today we're solving problem 10 from chapter two of the textbook, which involves the concept of comparative advantage.
00:08
So i think since comparative advantage and absolute advantage both deal with the production possibilities, curve or frontier, however you like to refer to it, i think it's good to think of an example involving two parties or two countries and the production of two different goods and services, or services rather.
00:27
So i'm just going to rely on the one in the textbook.
00:30
So let's say we're going to.
00:31
We have brazil's production per acre and the united states production per acre.
00:36
And on the x axis, we have wheat production.
00:39
And on the y -axis, we have sugar cane production.
00:44
So to explain the concept of comparative advantage, so let's say, i'll just say look at textbook for further clarification if needed.
00:59
Chapter 2 is where you look.
01:00
And basically we have brazil versus u .s.
01:06
Example of producing both sugar cane and wheat.
01:14
All right.
01:14
So from this example, what we know is that the production possibilities curve for the united states is flatter than the production possibilities curve for brazil when we have sugar cane on the y axis and wheat on the x axis.
01:28
So what this means is that the opportunity cost of wheat in terms of sugar cane is lower in the u .s.
01:35
So this implies that the u .s.
01:36
Has a comparative advantage in wheat, because the opportunity cost of wheat in terms of how much sugar cane they have to give up is less than how much sugar cane.
01:45
Brazil has to give up for producing wheat...