Question

Quebec is capable of producing 10 pallets of wood shingles or 8 barrels of maple syrup with a unit of labor. Vermont is capable of producing 12 pallets of wood shingles or 12 barrels of maple syrup with a unit of labor. Assume that this is typical of the labor force as a whole. Which location has the absolute advantage and which has the comparative advantage, in the production of each good? Can these locations reap gains from trade?

Answer 1

	Wood Shringles	Maple Syrup
Quebec	10	8
Vermont	12	12

Vermont can produce more output of Wood Shingles and Maple syrup using the same input. Therefore, Vermont has absolute advantage in producing Wood Shingles as well as Maple Syrup.

In order to determine which country has comparative advantage we have to determine the opportunity cost.

In Quebec, 10 wood shingles = 8 Maple Syrup

1 wood shingles = 8/10 = 0.8 barrels of Maple syrup

1 barrel of Maple syrup = 10/8 = 1.25 pallets of wood shingles

In Vermont,

12 pallets Wood Shingles = 12 barrels of Maple Syrup

1 pallet of wood shingles = 1 barrel of maple syrup

Opportunity Cost

	1 Pellet of Wood Shingles	1 Barrel of Maple Syrup
Quebec	0.8 pellets of Maple syrup	1.25 pellets of Wood shingles
Vermont	1 barrel of Maple Syrup	1 pellet of Wood Shingles

Quebec has lower opportunity cost in producing wood shingles. So Quebec has Comparative advantage in producing Wood shingles.

Vermont has lower opportunity cost in producing Maple syrup so it has comparative advantage in producing Maple syrup.

Yes they can get benefitted through trade. They will be able to consume more than what they are consuming. That is they will be consuming more than their PPF. As we know with trade every one get benefitted.

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