Below is a table showing the daily production numbers for 1

Below is a table showing the daily production numbers for 1 worker in both Mexico and Canada. Use these numbers to answer the questions below.

1 worker in Mexico can produce in 1 day

1 worker in Canada can produce in 1 day

2 sodas or 12 pizzas

3 sodas or 24 pizzas

a. What country has the absolute advantage in pizzas? Explain your answer with numbers.

b. What country has the absolute advantage in sodas? Explain your answer with numbers.

c. Determine the opportunity cost of producing 1 pizza in Canada.

d. Determine the opportunity cost of producing 1 pizza in Mexico.

e. Determine the opportunity cost of producing 1 soda in Canada.

f. Determine the opportunity cost of producing 1 soda in Mexico.

g. What country has the comparative advantage in pizzas and, thus, will specialize in pizzas when trading? Explain you answer with numbers.

h. What country has the comparative advantage in sodas and, thus, will specialize in sodas when trading? Explain your answer with numbers.

i. Determine a trade agreement for 1 pizza (price in terms of x number of sodas for 1 pizza) that both countries would benefit from. (Do not give me a range of prices. Just give me 1 price and 1 price only.) (Hint: who will be buying and who will be selling pizzas?)

j. Explain (using numbers) how Canada would benefit from your answer to (i) above.

k. Explain (using numbers) how Mexico would benefit from your answer to (i) above.

Solution

a.) Canada has absolute advantage in pizzas because it can produce 24 pizzas with one worker.

b.)Canada has absolute advantage in sodas because it can produce 3 sodas with one worker.

c.)In canada ,opportunity cost of producing one pizza is 3/24=1/8 soda.

d.)In mexico,opportunity cost of producing one pizza is 2/12=1/6 soda.

e.)n canada ,opportunity cost of producing one soda is 24/3=8 pizzas.

f.)In mexico,opportunity cost of producing one soda is 12/2=6 pizzas.

g.)Since canada has lower opportunity costs of producing pizzas which is 1/8 than mexico(1/6),So canada has comparative advantage in pizzas.

h.)Since mexico has lower opportunity costs of producing sodas which is 6 pizzas than canada(8 pizzas),So mexico has comparative advantage in sodas.