Given a two-country and two-product world, the United States would enjoy all the attainable gains from free trade with Canada if it
A) trades at the U.S. rate of transformation.
B) trades at the Canadian rate of transformation.
C) specializes completely in the production of both goods.
D) specializes partially in the production of both goods.

Question

Quizplus · Accepted Answer

According to the Production Possibilities Frontier in Figure 2.1, Canada has a comparative advantage in producing Good A while the United States has a comparative advantage in producing Good B. Therefore, the United States would benefit the most from free trade with Canada if it trades at the Canadian rate of transformation, meaning it specializes in producing Good B and trading with Canada for Good A.

Given a Two-Country and Two-Product World, the United States Would