Should the United States Grow Bananas?

EconEye Admin

11 months ago

The U.S. Commerce Secretary suggests that the simplest way to avoid tariffs is to produce everything domestically—appropriations.house.gov

Answer the following questions to check your understanding of the story.

Why doesn’t the United States produce bananas?

The United States doesn’t produce bananas because other countries __________.

a) have an absolute advantage

b) can produce better bananas

c) can produce them at a lower opportunity cost

d) pay lower wages

Wrong! - Why does the United States produce some goods and import other goods? Does it make this decision based on wage rates in other countries or absolute advantage? Do other countries necessarily produce better bananas?

That's Right! - If the United States imports bananas at a lower opportunity cost than its opportunity cost of producing them, American’s pay less for bananas than they would pay for U.S.-grown bananas.

Does the United States have a comparative advantage in banana production?

The United States __________ have a comparative advantage in banana production because its opportunity cost of producing them is __________ than Ecuador’s and Guatemala’s.

a) does; higher

b) does; lower

c) does not; lower

d) does not; higher

Wrong! - What gives a country a comparative advantage in banana production? What is the relationship between comparative advantage and opportunity cost?

Well Done! - The United States does not have a comparative advantage in banana production. The countries with a comparative advantage in banana production can produce them at a lower opportunity cost than another country, and the United States cannot produce bananas at a lower opportunity cost than other countries.

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