1. The following table shows the amount of good A and good B

Question

1. The following table shows the amount of good A and good B

that two countries could produce if they devoted all of their resources to that good. Assume both countries have the same amount of resources and the trade-off between good A and good B remains constant as resources are shifted from one good to another. (35 points)

Canada India

Good A 200 300

Good B 400 900

a.      Which country has the absolute advantage in good A? In good B?

b.      What is Canada's marginal opportunity cost of producing good A? good B?

c.      What is India's marginal opportunity cost of producing good A? good B?
d.      Which country has the comparative advantage in good A? In good B?
e.      Assume both countries wish to expand their consumption of good B while at the same time maintaining their consumption of good A. Is this possible if they refuse to trade? Why?
f.       Assume both countries agree to trade. Show that they will be able to expand their
consumption of good B while maintaining their consumption of good A. What are the total gains from exchange, measured in units of good B?

Answer 1

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Answer 2

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