Using the same amount of resources, the United States and Canada can both produc
ID: 1123794 • Letter: U
Question
Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the production possibilities frontiers in the figure to the right has a comparative advantage in producing lumberjack boots. has a comparative advantage in producing lumberjack shirts. Does either country have an absolute advantage in producing both goods? A. Neither country has an absolute advantage in both goods because Canada can produce more boots but the United States can produce more shirts. B. Canada has an absolute advantage in both goods because it can produce more boots and more shirts. O C. Both countries have an absolute advantage in both goods because they both produce boots and shirts. 0 D. The United States has an absolute advantage in both goods because it can produce more boots and more shirts. 0 E. Neither country has an absolute advantage in both goods because the United States can produce more boots but Canada can produce more shirts. Suppose initially that the United States is consuming 2 boots and 18 shirts and Canada is consuming 18 boots and 2 shirts, as indicated in the figure. Then, suppose the United States and Canada specialize by each only producing the good for which they have a comparative advantage and then trade. In particular, suppose the United States trades Canada half of its production for half of what Canada produces. The United States will haveadditional shirt(s) after the trade (enter a numeric response using an integer) and dditional boot(s). t the same time, Canada will be able to consumeadditional shirt(s) as a result of the trade and additional boot(s).Explanation / Answer
A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.
Canada:
4 shirts = 36 boots
1 shirt= 36/4 = 9 boots
1 boot = 4/36 = 0.11 shirts
Opportunity cost of producing 1 shirt by Canada is 9 boots and 1 boot is 0.11 shirt.
The United States:
4 boots = 36 shirts
1 boot = 36/4 = 9 shirts
1 shirt = 4/36 = 0.11 boot
Opportunity cost of producing 1 boot is 9 shirts and 1 shirt is 0.11 boot.
Opportunity cost of producing 1 boot is less when it is produced by Canada. So, Canada has comparative advantage in the production of boots.
The US has comparative advantage in the production of shirts.
1) Canada
2) US
3) Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.
(A) Neither country has an absolute advantage in producing both the goods because Canada can produce more boots while US can produce more shirts.
4) After specialisation, Canada will produce only boots i.e. 18 units of boots
US will produce only shirts i.e. 18 units of shirts
Both will trade 9 units of boots with 9 units of shirts
After trade: Canada has 9 units of boots and 9 units of shirts
US has 9 units of shirts and 9 units of boots
a) US has additional 0 shirts and (9 - 2) = 7 additional boots
b) Canada has 7 additional shirts and 0 additional boots.
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