Suppose it takes a Chinese worker 2 hours to produce a ceramic pot, and 20 hours to produce a tablecloth. Suppose that it takes a Canadian worker 2 hours to produce a ceramic pot and 10 hours to produce a tablecloth. It will pay China to produce extra pots and export them to Canada in return for imported Canadian tablecloths.

Question

Quizplus · Accepted Answer

This scenario demonstrates comparative advantage, where China has a lower opportunity cost of producing ceramic pots compared to tablecloths, and Canada has a lower opportunity cost of producing tablecloths compared to ceramic pots. This means that China can produce ceramic pots more efficiently than Canada, and Canada can produce tablecloths more efficiently than China. Thus, it makes sense for China to specialize in producing ceramics pots and export them to Canada in exchange for Canadian tablecloths.

Suppose It Takes a Chinese Worker 2 Hours to Produce