4. According to the Canadian international merchandise trade data base from Stat

ID: 1142206 • Letter: 4

Question

4. According to the Canadian international merchandise trade data base from Statistics Canada, in the 3rd quarter of 2016, Canada sold aircraft and space craft worth 113.94 million dollars to China and bought aircraft and space craft worth only 40.5 million dollars from China. During the same quarter, however, Canada bought 1568.2 million dollars worth of apparel and clothing accessories from China but sold only 643, 705$ worth of apparel and clothing accessories to China. Using what you have learnt about how trade is determined by comparative advantage, answer the following: a) Which country has the comparative advantage in aircraft production? In the production of apparel and clothing accessories? b) Can you determine which country has the absolute advantage in aircraft production? In the production of apparel and clothing accessories?

Explanation / Answer

Answer:

Commodity

Canada trade with china

Aircraft and space craft

Apparel and clothing accessories

Sold

113.94 million dollars

$ 643,705

Brought

40.5 million dollars

1568.2 million dollar

To calculate comparative advantage

Aircraft production = commodity sold by Canada (113.94 million )/ commodity brought by Canada (40.5 million)

Apparel and accessories = commodity sold by Canada ($643,705) / commodity brought by Canada (1568.2 million)

The value of comparative advantage of aircraft production is greater than the apparel and accessories production

So, Canada has comparative advantage in aircraft production and china has comparative advantage in production of apparel and clothing accessories.

We cannot determine which country has the absolute advantage in aircraft production and which country has absolute advantage in the production of apparel and clothing accessories because both the countries are production both commodities and doing import – export of both commodities while in absolute advantage a country produces only one commodity while another country produces another commodity and are involved in trade with exporting one commodity only and importing another commodity