A. Consider the following scenario concerning the United States (US) and Canada

Question

A.

Consider the following scenario concerning the United States (US) and Canada (Can):

In this scenario, the US has an opportunity cost of _________ for producing one more car

1. 1/3

2. 3

3. 2

4. 6

B.

Consider the following scenario concerning the United States (US) and Canada (Can):

In this scenario, the US has a comparative advantage in producing _________, and Canada has a comparative advantage in producing __________.

1. Syrup; cars.

2. Both have a comparative advantage in cars.

3. Both have a comparative advantage in syrup.

4. Cars; syrup.

C.

Consider the following scenario concerning the United States (US) and Canada (Can):

In this scenario, the US has an absolute advantage in producing _________, and Canada has an absolute advantage in producing __________.

1. Syrup; cars.

2. Cars and syrup; nothing.

3. Cars; Syrup.

4. Nothing; syrup and cars.

D.

Consider the following scenario concerning the United States (US) and Canada (Can):

Suppose once again as in Problem 16 that in the US, each citizen will consume two cars, and in Canada, each citizen will consume 3 syrup. Suppose both countries decide to trade according to comparative advantage. Then, after trade, the production point for the US would be __________, and the production point for Canada would be _________.

1. 600 cars for the US, 120 syrup for the US; 300 cars for Canada, 120 syrup for Canada.

2. 600 cars for the US, 100 syrup for the US; 40 cars for Canada, 120 syrup for Canada.

3. 300 cars for the US, 120 syrup for the US; 300 cars for Canada, 120 syrup for Canada.

4. 300 cars for the US, 100 syrup for the US; 300 cars for Canada, 120 syrup for Canada.

Population How many cars each citizen can produce How much maple syrup each citizen can produce US     300                         3                                   1 Canada      40                     2                                   6

Explanation / Answer

A. The correct answer is: 1

Reason: opportunity cost of producing an extra car = 1/3

B. The correct answer is: 4

Reason: the opportunity cost of producing an extra car in US is 1/3 and that in Canada is 6/2 = 3. Thus Us has a lower opportunity cost in producing car and thus a comparative advantage in the production of cars and consequently, Canada in maple syrup.

C. The correct answer is: 3

Reason: as for citizen, US can produce more cars than Canada and similarly, Canada can produce more of maple syr

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