$\text { Table 55b }$
$\begin{array}{l}
\text { Units of output produced by } 1 \text { hour of labor input }\
\begin{array}{|l|l|l|}
\hline \text { Commodity } & \text { Canada } & \text { Mexico } \
\hline \text { Bread } & 3 \text { loaves } & 1 \text { loaves } \
\hline \text { Cheese } & 4 \text { pounds } & 2 \text { pounds } \
\hline
\end{array}
\end{array}$

-In Table 55b, if Mexico buys bread from Canada at the Canadian price, it will pay ___________. If Mexico buys bread from Canada at the Mexican price, it will pay________. (Fill in the blanks)

Question

$\text { Table 55b }$
$\begin{array}{l}
\text { Units of output produced by } 1 \text { hour of labor input }\
\begin{array}{|l|l|l|}
\hline \text { Commodity } & \text { Canada } & \text { Mexico } \
\hline \text { Bread } & 3 \text { loaves } & 1 \text { loaves } \
\hline \text { Cheese } & 4 \text { pounds } & 2 \text { pounds } \
\hline
\end{array}
\end{array}$

-In Table 55b, if Mexico buys bread from Canada at the Canadian price, it will pay ___________. If Mexico buys bread from Canada at the Mexican price, it will pay________. (Fill in the blanks)

Quizplus · Accepted Answer

According to the table, one hour of labor input produces 1 loaf of bread in Mexico and 3 loaves of bread in Canada. Therefore, Canada has a comparative advantage in bread production. If Mexico buys bread from Canada at the Canadian price, it will pay 3 loaves of bread for 1 pound of cheese (Canada's opportunity cost of producing 1 pound of cheese is 3 loaves of bread). Thus, Mexico will pay 1.33 pounds of cheese for 4 loaves of bread (the Canadian price of 1 pound of cheese divided by the Canadian unit output of bread per hour of labor input = 1/3 = 0.33, multiplied by the Mexican unit output of bread per hour of labor input = 0.33 x 4 = 1.33). If Mexico buys bread from Canada at the Mexican price, it will pay 1 loaf of bread for 2 pounds of cheese (Mexico's opportunity cost of producing 1 pound of cheese is 1/2 loaf of bread). Thus, Mexico will pay 2 pounds of cheese for 6 loaves of bread (the Mexican price of 1 pound of cheese multiplied by the Canadian unit output of bread per hour of labor input = 2 x 3 = 6). Therefore, Mexico will save more cheese by buying bread from Canada at the Canadian price.

Table 55b \text { Table 55b } Table 55b -In Table 55b, If Mexico Buys Bread from Canada at output

$\text { Table 55b }$ -In Table 55b, If Mexico Buys Bread from Canada at output