Assume that Honduras has a comparative advantage in producing bananas and exports bananas to Brazil.We can conclude that
A)Honduras also has an absolute advantage in producing bananas relative to Brazil.
B)Honduras has a lower opportunity cost of producing bananas relative to Brazil.
C)Brazil has an absolute disadvantage in producing bananas relative to Honduras.
D)Labor costs are higher for banana producers in Brazil than in Honduras.

Question

Quizplus · Accepted Answer

Comparative advantage is determined by the opportunity cost of producing a good. If Honduras specializes in producing bananas and exports them to Brazil, it must have a lower opportunity cost of producing bananas relative to Brazil. This means that Honduras must either use fewer resources or be more efficient in producing bananas than Brazil. It does not necessarily mean that Honduras has an absolute advantage in producing bananas or that labor costs are higher in Brazil.

Assume That Honduras Has a Comparative Advantage in Producing Bananas