Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. The opportunity cost of one pair of shoes for the United States is _____, while the opportunity cost of one pair of shoes for Canada is ______.

Question

Quizplus · Accepted Answer

The opportunity cost of one pair of shoes for the United States is 5 apples (since they can make 20 pairs of shoes or grow 100 apples per day) while the opportunity cost of one pair of shoes for Canada is 2 apples (since they can make 10 pairs of shoes or grow 20 apples per day). Therefore, the United States has a comparative advantage in producing shoes and Canada has a comparative advantage in growing apples. It would be beneficial for both countries to specialize in their comparative advantage and then trade with each other. For example, if the United States focuses solely on producing shoes, they could trade some of their shoes to Canada in exchange for apples, allowing both countries to consume more of both goods than if they tried to produce both goods on their own.

Suppose an American Worker Can Make 20 Pairs of Shoes