Question

Assume a worker in the US can produce 3 tons of apples or 6 tons of lumber and a worker in Canada can produce 2 tons of apples or 8 tons of lumber. If under free trade the global price of apples is $1000 per ton and the price of lumber is $400 per ton. Will Canada and the US trade?

Answer 1

Answer) When we convert the goods in terms of global prices under free prices ,we get that in US a worker can produce 3 tons of apples or $3000 worth of apples or 6 tons of lumber or $2400 worth of lumber while in canada,a worker can produce 2 tons of apples or $2000 worth of apples or 8 tons of lumber or $3200 worth of lumber,so in terms of comparitive advantage US has comparitive advantage in apples while Canada has comparitive advantage in terms of lumber,so,Yes, US and Canada will produce goods in which they have comparitive advantage and trade.

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