Question

The opportunity cost of producing one bushel of wheat in Canada is equal to 1/2 TV set. The opportunity cost of producing one bushel of wheat in the US is 2 TV sets. If these two countries specialize according to comparative advantage and then trade with each other, _____________________.A. Canada will export both televisions and wheat B. Canada will esport wheat and import televisions C. The United States will export wheat and import televisions D. The United States will export both televisions and wheat

Answer 1

Option (B) is correct.

Step-by-step explanation:

Canada:

Opportunity cost of producing one bushel of wheat = 1/2 TV set

Opportunity cost of producing one TV set = 2 bushel of wheat

U.S:

Opportunity cost of producing one bushel of wheat = 2 TV sets

Opportunity cost of producing one TV set = (1/2) bushel of wheat

According to the principle of comparative advantage,

Canada has a comparative advantage in producing wheat because the opportunity cost of producing one bushel of wheat is lower than the United states.

The trade theory states that a country is exporting a commodity in which it has a comparative advantage and importing a commodity in which it has a comparative disadvantage.

Hence, Canada will export wheat and import televisions.