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	8tons	16tons
Beef	10tons	5tons

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 product should each country export? Why?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.

Answer 1

A country has an Absolute advantage in a good in which it is more productive compared to other country. U.S. has an absolute advantage in Lumber. And Canada has an absolute advantage in beef because Canada requires lower labor requirement compared to U.S. Thus Canada has an AA in Beef.

country will produce according to comparative advantage and will trade.

A country has a Comparative advantage in the good in which it has more absolute advantage or lower absolute disadvantage, U.S. will export and has comparative advantage in Lumber and Canada has comparative advantage in Beef.