Suppose the U.S. can produce 10 units of food and 5 units of clothing (or any such linear combination) and Canada can produce 6 units of food and 4 units of clothing (or any such linear combination)

If trade occurs between these two countries, which should produce more food and which more clothing?


The U.S. has a comparative advantage in food, 5/10 < 4/6. Canada has a comparative advantage in clothing, 5/10 < 4/6. The U.S. should produce food and Canada should produce clothing.

Economics

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Economics