Question

True, false or uncertain

112-A1-3. Suppose that Ontario can produce wheat at $1/bushel and corn at $3/bushel and Quebec can produce wheat at $4/bushel and corn at $4/bushel. Ontario has an absolute advantage in corn production, but Quebec has a comparative advantage in corn production.

112-A1-4. The data in 112A1-3 tells us that trading corn from Quebec to Ontario at a price of 2 bushels of corn per bushel of wheat will make both provinces better off.

Answer 1

Question 3

Ontario can produce wheat at $1 per bushel and corn at $3 per bushel and Quebec can produce wheat at $4 per bushel and corn at $4 per bushel.

It can be seen that Ontario can produce both wheat and corn at lower cost relative to Quebec.

Thus, Ontario has absolute advantage in the production of both wheat and corn.

The opportunity cost of producing 1 bushel of corn in Ontario is (3/1) 3 bushels of wheat.

The opportunity cost of producing 1 bushel of corn in Quebec is (4/4) 1 bushel of wheat.

It can be seen tha Quebec can produce corn at lower opportunity cost and thus have comparative advantage in corn production.

Thus, the given statement is True.