Suppose that the United States and Canada both produce only two products,televis

Question

Suppose that the United States and Canada both produce only two products,televisions and food. The United States can produce 100 televisions a day, 150 pounds of food a day, or any combination in between (For example, the United States could produce 100 televisions and no food, SO televisions and 75 pounds of food,or 150 pounds of food and no televisions) Canada can produce 300 televisions a day, 330 any combination in between. pounds of food a day, or Food (pounds) Food (pounds) 300 United States Canada 200 100 100 200 300 100 200 300 Televisions 1st attempt

Explanation / Answer

a) The opportunity cost of producing 1 pound of food in the US is 100/150 = 0.66 or 2/3 of television.

The answer is "B".

b) The US can produce 1 pound of food by giving up 0.66 television. But Canada has to give up 1 TV for each food. so the US has a comparative advantage in producing food and Canada has a comparative advantage in the production of TV.

c) The answer is "D", the US will give food to Canada and they will buy a TV from Canada.

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