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 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 comparative advantage:

Quizplus · Accepted Answer

According to the production possibilities schedule, Canada has a comparative advantage in producing commodity Y, while the US has a comparative advantage in producing commodity X. Therefore, Canada should specialize and export Y to the US in exchange for importing X from the US. Option A is incorrect as Canada does not have a comparative advantage in producing X, so it would not import it. Option C is incorrect as the US has a comparative advantage in producing X, so it would not import it. Option D is incorrect as the US has a comparative advantage in producing X, but Canada also has the ability to produce X, so there would be no need for the US to import both X and Y.

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