Suppose Canada produces only two goods, corn and automobiles. If Canada has a comparative advantage in automobiles, a move toward free trade will:

Question

Quizplus · Accepted Answer

If Canada has a comparative advantage in automobiles, it means that they can produce automobiles at a lower opportunity cost compared to corn. Therefore, if Canada were to move towards free trade, they can specialize in the production of automobiles and export them to other countries in exchange for corn. This will benefit automobile workers as they will have more job opportunities and a higher income. However, it will harm corn workers as there will be less demand for corn in Canada. Overall, the nation as a whole will benefit because Canada can trade their surplus of automobiles for corn, which will lead to an increase in economic welfare.

Suppose Canada Produces Only Two Goods, Corn and Automobiles