Use the following to answer question(s): Production Possibilities Schedule for Two Commodities

-(Exhibit: Production Possibilities Schedule for Two Commodities) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of units of commodity X each country would have to forgo to produce the additional units of commodity Y indicated.Further assume that the only input is labor and that it remains fully employed.A comparative advantage exists in:

Question

Use the following to answer question(s): Production Possibilities Schedule for Two Commodities
 
-(Exhibit: Production Possibilities Schedule for Two Commodities) Assuming constant costs in the neighborhood of their current levels of production, the exhibit shows the number of units of commodity X each country would have to forgo to produce the additional units of commodity Y indicated.Further assume that the only input is labor and that it remains fully employed.A comparative advantage exists in:

Quizplus · Accepted Answer

Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country. Looking at the Production Possibilities Schedule, we can see that the opportunity cost of producing one unit of X for America is 2 units of Y, while for Canada, it is 1 unit of Y. On the other hand, the opportunity cost of producing one unit of Y for America is 1/2 unit of X, while for Canada, it is 1/3 unit of X. Thus, America has a comparative advantage in producing commodity Y, while Canada has a comparative advantage in producing commodity X. Therefore, the best choice is C, which shows American production of X and Canadian production of Y.

Use the Following to Answer Question(s): Production Possibilities Schedule for Two