Using the same amount of resources, the United States and...

Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the following production possibilities frontiers: a. Who has a comparative advantage in producing lumberjack boots? Who has a comparative advantage in producing lumberjack shirts? Explain your reasoning. b. Does either country have an absolute advantage in producing both goods? Briefly explain. c. Suppose that both countries are currently producing three pairs of boots and three shirts. Show that both can be better off if they each specialize in producing one good and then trade for the other.

Transcript

00:03 Hello, let's start with the first with the part a of this question.

00:12 So we need to find who has a comparative advantage in producing lumberjack boots.

00:29 So let's look to the us first.

00:33 The opportunity cost of usa of producing boots is 12.

00:41 Over 4 which is 3 for canada it's equal to 6 over 6 which is 1 so as you can see 1 is less than 3 this means that canada has a comparative advantage in producing lumber jack boots now let's look to comparative advantage of producing shirts so now using the same formula for usa opportunity cost of producing shirts is one -third and for canada it's the same 6 over 6 1.

01:59 So comparing opportunity costs for usa and canada, we can see that usa has lower opportunity cost.

02:11 This means that usa has comparative advantage in producing lambertjack shirts.

02:22 So our answers are canada and usa.

02:31 So canada has a comparative advantage in producing lumberjack boots and the usa has a comparative advantage in producing lumberjack shirts.

02:46 Okay now we can go to the second part of this question, part b.

02:51 So now we need to find which country has an absolute advantage of producing boots and shirts.

03:03 I hope you remember that by definition, absolute advantage means to produce output using fewer inputs.

03:14 But in this question, it's given that both countries, they use exactly the same.

03:21 Amount of resources so now it's part b now we can just compare the output because they use exactly the same amount of resources let's start with absolute advantage in boots so usa produce for so you will see is see is four canada produces 6.

04:02 So since 6 is greater than 4, this means canada has an absolute advantage in producing lumberjack boots.

04:18 What about shirts? absolute advantage in producing shirts...

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