Suppose that Canada and the United States both produce maple svrup and honev tha

Question

Suppose that Canada and the United States both produce maple svrup and honev that are sold at the same price in both countries. The following table shows some of the combinations of the two goods that each country can produce in one day using the same amount of labor and capital. CANADA UNITED STATES Maple syrup (in Honey (in tons)Maple syrup (inHoney (in tons) tons) tons) 60 0 0 50 40 50 a. Which country has an absolute advantage in producing maple syrup? [3 points] b. Which country has an absolute advantage in producing honey? [3 points] If the two countries choose to trade, which country should specialize in the production of maple syrup? Show a c. r work. [6 points] d. If the two countries chose to trade, which country should specialize in the production of honey? k. [6 points]

Explanation / Answer

ANSWER:

(A) Canada has an absolute advantage in producing maple syrup.

(B) United States has an absolute advantage in producing honey.

(C) CANADA opportunity cost of producing Maple syrup 40/60=2/3

United States opportunity cost of producing maple syrup 50/50=1

2/3<1

So Canada should specialize in production of maple syrup

(D) Canada opportunity cost of producing Honey 60/40=3/2

United States opportunity cost of producing Honey 50/50=1

3/2>1

So United States should specialize in production of Honey

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