Suppose that Canada and Japan are the only two countries and each can produce two goods--cellular phones and cars.If Canada has an absolute advantage in cellular phones and Japan has an absolute advantage in cars,we know that
A)there will be no trade because neither country has a comparative advantage in either good.
B)one of the countries will have a comparative advantage in cellular phones,but we can't tell which one without more information.
C)Canada must have a comparative advantage in cars and Japan in cellular phones.
D)Canada has a comparative advantage in cellular phones and Japan has a comparative advantage in cars.

Question

Quizplus · Accepted Answer

The concept of absolute advantage tells us which country can produce a good using fewer resources than another country. However, comparative advantage considers the opportunity cost of producing a good, which is the foregone production of another good. If Canada produces one cellphone, it must give up producing a certain number of cars, while if Japan produces one car, it must give up producing a certain number of cellphones. It is possible that even if Canada has an absolute advantage in both goods, it has a lower opportunity cost of producing cellphones than Japan. Similarly, even if Japan has an absolute advantage in both goods, it has a lower opportunity cost of producing cars than Canada. Based on the information given, Canada has an absolute advantage in cellphones and Japan in cars, but we cannot determine which country has a comparative advantage in which good. However, it is likely that they will specialize in the production of the good in which they have a comparative advantage and trade with each other. Therefore, the best answer is D.

Suppose That Canada and Japan Are the Only Two Countries