Question

Suppose an American worker can make 20 pairs of shoes or grow 100 apples per day. On the other hand, a Canadian worker can produce 10 pairs of shoes or grow 20 apples per day. The opportunity cost for the United States is _______.

Answer 1

If the United States grows 100 apples, its opportunity cost is 20 pairs of shoes, and if it produces 20 pairs of shoes, its opportunity cost of 100 apples.

If Canada produces 10 pairs of shoes, its opportunity cost is 20 apples, and if it grows 20 apples, its opportunity cost is 10 pairs of shoes.

Canada's opportunity costs are lower than the US opportunity costs. However, assuming that both countries have the same amount of inputs, the United States has by far the absolute advantage, because it can produce more of either product, therefore, it would have more power in a trade deal.