The data indicates the maximum quantity of each good that each country can produce. Sketch the respective transformation schedules. Identify the pattern of comparative advantages. Identify the limits of the terms of trade. The cost of automobiles in Argentia is 3 units of wheat while the cost of automobile is 2 units of wheat in Brazil.
Brazil has a comparative advantage in the production of automobiles.
Argentina has a comparate advantage in the production of wheat. Brazil will specialize in the production of automobiles while Argentina specializes in the production of wheat. The terms of trade will be between the respective costs of the two countries. A and A represent the pre-trade positions of the two countries. Suppose that the terms of trade are 1 cigarette for 1.5 steel.