Suppose there are 20 million workers in canada and that each...

Suppose there are 20 million workers in Canada and that each of these workers can produce either 3 cars or 15 bushels of wheat in a year. what is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a bushel of wheat in Canada? If the US's opportunity cost for cars was 4 bushels of wheat, and its opportunity cost for a bushel of wheat was 1/4 of a car, and both countries decided to trade, which country would specialize in cars and which country would specialize in wheat? Draw Canada's production possibilities frontier and show where it would produce if it decided to consume an equal number of cars and of bushels of wheat. How would it distribute its workers to produce the quantities in question 2.?

Transcript

00:01 So we're given some data about what canadian workers can produce, right? they can produce either three cars or 15 bushels of wheat.

00:07 So first, if we want to think about the opportunity cost of producing a car, we can rewrite this as for canada, we can think of three cars as being equal to 15 wheat, right? that's the tradeoff canada is making.

00:23 Each worker can produce three cars or 15 wheat.

00:25 So these are equal in a sense.

00:26 Well, if i divide by three, i get one car equals five wheat, right? which is the opportunity cost of producing a car in canada, right? an opportunity cost is what you give up.

00:38 Every car canada produces means that you are giving out five wheat.

00:43 If we want to get the opportunity cost of a bushel of wheat, we just need to divide by five.

00:47 We get 0 .2 cars equals one wheat.

00:51 So every bushel of wheat produced means that we are sacrificing 0 .2 cars.

00:56 Now we're entering the us, right? for the us, we're told that one car is equal to four wheat.

01:05 And equivalently, it means that 0 .25 cars is equal to one wheat, right? this is the information that we've been given on the united states.

01:15 So if both countries decided to trade, right? canada wants to specialize in wheat because canada has the lower opportunity opportunity cost.

01:26 When canada produces wheat, it gives up fewer cars.

01:30 When the united states produces wheat, it gives up more cars, right? the united states, look at me, get the colors right, red and blue.

01:37 The united states would specialize in cars, right? it produces cars and gives up four wheat.

01:41 Canada produces cars and gives up five wheat.

01:44 So in terms of the other good, canada would choose to specialize in wheat and the united states would specialize in cars because those are where the lowest opportunity costs are.

01:54 Sometimes we would call those...

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