Question

Using the numbers from Table 2-1, explain why the United States and Brazil are willing to engage in a trade of 10 large jets for 15 small jets.

TABLE 2-1 U.S. and Brazilian Opportunity Costs of Small Jets and Large Jets
	U.S. Opportunity Cost	Brazilian Opportunity Cost
1 small jet	¾ large jet >	1/3 large jet
1 large jet	4/3 small jets <	3 small jets

Short answer

The U.S. will specialize in large jets due to the lesser opportunity cost compared to Brazil, while Brazil will specialize in small jets for the same reasons. Thus, the U.S. and Brazil will be willing to trade 10 large jets for 15 small jets.

Step-by-step solution

Step 1:Defining the opportunity cost for the problem

A country has a comparative advantage in the production of a good which has the lowest opportunity cost and gives maximum gain from trade.

The table shows that for the United States,the opportunity cost of producing 1 small jet is 3/4of a large jet, and the opportunity cost of producing 1 large jet is 4/3 of a small jet.

For Brazil, the opportunity cost of producing 1 small jet is 1/3 of a large jet, and the opportunity cost of producing 1 large jet is 3 of a small jet.

This is evident from the table that for producing 1 small jet, the opportunity cost for the U.S.is greater than Brazil, while for producing 1 large jet, the opportunity cost for the U.S. is less than Brazil.

Gains from trade 

Brazil has to give up production of 3 small jets to produce 1 large jet while the U.S. can produce the same by giving up only 4/3 of small jets. The United States will specialize in the production of large jets.

As such, Brazil will specialize in producing small jets because to produce a small jet,it has to give up only 1/3 of large jets that are smaller than the opportunity cost of the U.S.

Therefore, the United States will trade 10 large jets for 15 small jets from Brazil, or conversely, Brazil will trade 15 small jets for 10 large jets from the United States.