The production possibilities curve for guns and butter in both Canada and the U.S. are straight lines. Suppose for Canada, the opportunity cost of producing butter is 1/2 gun. What must the opportunity cost of producing butter in the U.S. be if it specializes in guns and Canada specializes in butter?

Question

Quizplus · Accepted Answer

For Canada to specialize in butter, it must have a lower opportunity cost for butter than the U.S. Therefore, the U.S. must have an opportunity cost of producing butter that is more than 1/2 gun, making it more efficient for the U.S. to specialize in guns.

The Production Possibilities Curve for Guns and Butter in Both