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.If there were unrestricted trade and specialization according to the law of comparative advantage:

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.If there were unrestricted trade and specialization according to the law of comparative advantage:

Quizplus · Accepted Answer

According to the law of comparative advantage, each country should specialize in producing the commodity in which they have a comparative advantage (i.e. a lower opportunity cost). The production possibilities schedule shows that Canada has a lower opportunity cost of producing commodity X, while the United States has a lower opportunity cost of producing commodity Y. Therefore, the United States should specialize in producing commodity Y and Canada should specialize in producing commodity X. This means that the United States would export X and Canada would export Y.

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