. Assume that both countries have one million acres of arable land. The followin
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Question
. Assume that both countries have one million acres of arable land.
The following are hypothetical production possibilities tables for Canada and Mexico. Assume that both countries have one million acres of arable land. Canada's Production Possibilities table: Mexico's Production Possibilty Table: Which country has the absolute advantage in the production of wheat? In corn? Explain Which country has the comparative advantage in wheat production? In corn production? Explain your answer. Suppose the optimum product mixes before specialisation and trade were B in Canada and Mexico. What are the gains from specialisation and trade?Explanation / Answer
a)In wheat ,there is no absolute advantage as both can produce 0, 20,40 and 60. but in corn ,mexico has comparative advantage as it can produce more i.e 65
b)Mexico has comparative advantage in corn and canada has in wheat. this is bcoz mexico can sacrifice less corn for producing more whear as to produce from 0 to 20, it is sacrificing only 5 corn ,i.e from 10 to 5.similarly for Mexico , for producing more corn for sacrificing less wheat.
c)gains from trade is A can export wheat and import corn. So by producing 40 wheat, canada is gaining 5 corn and mexico gaining 20 wheat
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