Questions: Suppose the world price of coffee is 2 per pound and Brazil's domestic price of coffee without trade is 3 per pound. If Brazil allows free trade, will Brazil be an importer or an exporter of coffee?

If Brazil allows free trade, it will be an exporter of coffee.

Here's the reasoning:

1. World Price vs. Domestic Price: The world price of coffee is $2 per pound, while Brazil's domestic price without trade is $3 per pound. This indicates that Brazil can produce coffee at a lower cost than the world market price.

2. Comparative Advantage: Since Brazil can produce coffee at a lower cost than the world price, it has a comparative advantage in producing coffee. This means Brazil can produce coffee more efficiently compared to other countries.

3. Incentive to Export: With free trade, Brazil can sell its coffee on the world market at the higher world price of $2 per pound, rather than the lower domestic price of $3 per pound. This creates an incentive for Brazil to export coffee.

4. Market Dynamics: When a country has a comparative advantage in producing a good, it typically becomes an exporter of that good. In this case, Brazil will export coffee to take advantage of the higher prices available in the international market.

In summary, Brazil will be an exporter of coffee if it allows free trade, due to its ability to produce coffee at a lower cost than the world price, giving it a comparative advantage.