Question

Suppose that the united states and canada each produce only two products, televisions and food. The united states can produce 100 televisions a day, 150 pounds of food a day, or any linear combination in between. (for example, it could choose 100 televisions and no food, 50 televisions and 75 pounds of food, or 150 pounds of food and no televisions.) canada can produce 300 televisions a day, 330 pounds of food a day, or any linear combination in between. Which of these trades could make both the united states and canada better off?

Answer 1

Answer: Trade between the two countries is beneficial when United States trade food to Canada and Canada would trade televisions to the United States.

Explanation: In international trade, each country will produce a good in which it has a comparative advantage (lower opportunity cost).

Opportunity cost of food is,

Unites states = $\frac{100}{150} = 0.66$

Canada = $\frac{300}{330} = 0.90$

Opportunity cost of television is,

Unites states = $\frac{150}{100} = 1.5$

Canada = $\frac{330}{300} = 1.1$

Since, opportunity cost of food is lower in the United states, United states will export food.

Opportunity cost of television is lower in Canada, Canada will export television to the United States.