Brazil is almost self-sufficient in ethanol. Brazilian ethanol is made from sugar and costs 83cents per gallon whereas U. S. ethanol, made from corn, costs $1.14 per gallon. The United States has set a zero quota on imports of ethanol, so it does not import ethanol. Source: The New York Times , April 12, 2006 Which country has a comparative advantage in producing ethanol? Explain why both the United States and Brazil can gain from specialization and trade.

Question

Ishaan Yu

Business

11 August, 08:15

Brazil is almost self-sufficient in ethanol. Brazilian ethanol is made from sugar and costs 83cents per gallon whereas U. S. ethanol, made from corn, costs $1.14 per gallon. The United States has set a zero quota on imports of ethanol, so it does not import ethanol. Source: The New York Times , April 12, 2006 Which country has a comparative advantage in producing ethanol? Explain why both the United States and Brazil can gain from specialization and trade.

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Robert Spence · Answer 1

Brazil has comparative advantage in Ethanol.

Both US & Ethanol can gain from trade, if they specialise in their good of comparative advantage & import the other at lower opportunity cost.

Explanation:

Comparative advantage is when an economy can produce a good with lesser opportunity cost than other economy.

Brazil can produce ethanol at lower opportunity cost, as it uses lesser resources to produce Ethanol, compared to US.

So, Brazil has comparative advantage in producing ethanol. Both US & Brazil can gain from specialisation : As, US can get more ethanol at lesser than domestic opportunity cost. And, Brazil can also gain from trade by importing the good in which US has better opportunity cost & comparative advantage, in exchange of exported ethanol. It would imply Brazil would get more of the other good at lesser than domestic opportunity cost.