In a single year,Argentina can raise 100 tons of beef or produce 1,000 boxes of tulips.In the same growing season,Venezuela can raise 50 tons of beef or produce 750 boxes of tulips.When the two countries begin trading beef for tulips,we expect the price of beef in Venezuela:

A) to fall.
B) to rise.
C) to remain at the autarky price.
D) to be 15 boxes of tulips.

Question

Kelly Ann Madhoo · Accepted Answer

Final Answer : A, Explanation :  Argentina has a comparative advantage in raising beef as it can produce 100 tons compared to Venezuela's 50 tons. Venezuela has a comparative advantage in producing tulips as it can produce 750 boxes compared to Argentina's 1,000 boxes.Through trade, Argentina can sell its beef to Venezuela and receive tulips in return. This will increase the supply of beef in Venezuela, causing the price to fall. Therefore, the correct answer is (A) to fall.

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