-Refer to Table 3-5. If Canada and Japan trade based on the principle of comparative advantage, what could Canada gain from importing a car?
A) a maximum of 1/6 airplane
B) a maximum of 1/4 airplane
C) a maximum of 1/3 airplane
D) a maximum 3 airplanes

Question

-Refer to Table 3-5. If Canada and Japan trade based on the principle of comparative advantage, what could Canada gain from importing a car?
A) a maximum of 1/6 airplane 
B) a maximum of 1/4 airplane 
C) a maximum of 1/3 airplane 
D) a maximum 3 airplanes

Quizplus · Accepted Answer

Based on the principle of comparative advantage, Canada would gain from importing a car by giving up less of its own production of airplanes. If Canada can produce 1/3 of an airplane for every car it produces (as implied by the comparative advantage principle), by importing a car from Japan, it would give up less than this amount, thus gaining the difference. The correct choice is a maximum of 1/3 airplane, as it reflects the comparative advantage in terms of opportunity cost between the two countries.