Question

Suppose that the United States and Canada can each produce two products: lumber and beef. Create a table like the one below, showing labor requirements per unit of output for each country. (Hint: Choose numbers for each country that are easily divisible by one another.)

Labor Requirements per Unit of Output
	United States	Canada
Lumber
Beef

What does absolute advantage mean? How do you calculate absolute advantage? In what output(s) does the U.S. have an absolute advantage? Explain using the data from your table. In what output(s) does Canada have an absolute advantage? Explain using the data from your table.

What does comparative advantage mean? How do you calculate comparative advantage? In what output(s) does the U.S. have a comparative advantage? Explain using the data from your table. In what output(s) does Canada have a comparative advantage? Explain using the data from your table.

What product should each country export? Why?

Answer 1

Each country should export the good of there comaprative advantage because exporting the good in which we face lower opportunity cost and importing the good in which we face higher opportunity cost we can reach a consumption bundle which is outside the PPF , the same is also true for other country. Both countries can gain from trade.