The United States requires 20 hours of labor to produce 1 ton of steel and 30 hours of labor to produce 1,000 board feet of lumber. In Canada, 20 hours of labor are required to produce 1 ton of steel and 25 hours of labor to produce 1,000 board feet of lumber. Which country has a comparative advantage in the production of lumber?
A) the United States
B) Canada
C) Neither the United States nor Canada has a comparative advantage.
D) Both the United States and Canada have a comparative advantage.

Question

Quizplus · Accepted Answer

Canada has a comparative advantage in the production of lumber because it has a lower opportunity cost (25 hours) compared to the United States (30 hours). This means that for Canada, the cost of producing 1,000 board feet of lumber is lower than the cost of producing 1 ton of steel (20 hours), while for the United States, the cost of producing 1,000 board feet of lumber is higher than the cost of producing 1 ton of steel (20 hours vs 30 hours). Therefore, Canada should specialize in the production of lumber and trade with the United States for steel, which has a lower opportunity cost for the United States.

The United States Requires 20 Hours of Labor to Produce