Question

The United States and Canada trade hockey skates and apple pie. If the United States has an absolute and a comparative advantage in the production of apple pie, then:

A) The United States should only produce hockey skates.
B) The United States should only produce apple pie.
C) The United States should specialize in the production of apple pie.
D) The United States should specialize in the production of hockey skates.

Answer 1

The United States should specialize in the production of apple pie.

Step-by-step explanation:

The United States should specialize in the production of apple pie.

Comparative advantage refers to a country's ability to produce a good or service at a lower opportunity cost compared to another country. In this case, even though the United States has an absolute advantage in both hockey skates and apple pie, it should specialize in apple pie because it has a comparative advantage in its production. This means that the United States can produce apple pie at a lower opportunity cost compared to Canada, making it more efficient to focus on apple pie production and engage in trade with Canada for hockey skates.