Question

canada and the usa are both able to produce beef and gasoline. the table below shows their opportunity - costs:

	beef	gas
usa	4 gallons gas	0.25 lb beef

given this information, if the two countries were to beneficially trade with each other in beef and gasoline then:

1. which country has a comparative advantage in producing beef? select
2. which country has a comparative advantage in producing gas? select neither both canada usa

3.

1. and export select
2. usa should import select
3. and export select

Explanation:

Step1: Recall comparative - advantage concept

A country has a comparative advantage in producing a good if it has a lower opportunity cost of producing that good.

Step2: Determine comparative advantage in beef

The opportunity cost of producing 1 lb of beef in Canada is 2 gallons of gas. In the USA, it is 4 gallons of gas. Since 2 < 4, Canada has a lower opportunity - cost of producing beef. So Canada has a comparative advantage in beef production.

Step3: Determine comparative advantage in gas

The opportunity cost of producing 1 gallon of gas in Canada is 0.5 lb of beef. In the USA, it is 0.25 lb of beef. Since 0.25 < 0.5, the USA has a lower opportunity - cost of producing gas. So the USA has a comparative advantage in gas production.

Step4: Decide on trade

Based on comparative advantage, Canada should specialize in and export beef, and import gas. The USA should specialize in and export gas, and import beef.

Answer:

1. Canada
2. USA
3. Canada should import gas
4. Canada should export beef
5. USA should import beef
6. USA should export gas