Question
ppose the world consists of two countries - Canada and Mexico. Furthermore, suppose there are only two goods-food and eloth
ich of the following statements is true?
a. If Canada has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of ciothin
b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of
cothing.
c. If Canada has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing.
d. If Canada has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of fo
e. None of the answer choices are correct.
ich of the following statements is true?
a. If Canada has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of ciothin
b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of
cothing.
c. If Canada has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing.
d. If Canada has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of fo
e. None of the answer choices are correct.
Ask by Ramos Lambert. in the United States
Jan 21,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
If Canada has a comparative advantage in producing food, then Mexico must have a comparative advantage in producing clothing.
Solution
The concept of comparative advantage is fundamental in international trade theory. In a simplified world with two countries and two goods, the principle states that each country should specialize in producing the goods for which it has a lower opportunity cost, leading to mutual benefits from trade.
Let’s evaluate each statement:
a. If Canada has an absolute advantage in the production of food, then Mexico must have an absolute advantage in the production of clothing.
- Incorrect. Absolute advantage refers to a country’s ability to produce more of a good with the same resources compared to another country. If Canada has an absolute advantage in food, it doesn’t necessarily mean Mexico has an absolute advantage in clothing. Mexico could have no absolute advantage or could be less efficient in both goods.
b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.
- Correct. In a two-country, two-good model, if one country (Canada) has a comparative advantage in producing one good (food), the other country (Mexico) inherently has a comparative advantage in producing the other good (clothing). This mutual specialization is the basis for beneficial trade between the two countries.
c. If Canada has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing.
- Incorrect. Typically, a country has a comparative advantage in producing one good and not the other. If Canada specializes in food due to its comparative advantage, it likely has a higher opportunity cost for producing clothing compared to Mexico.
d. If Canada has a comparative advantage in the production of food, Mexico might also have a comparative advantage in the production of food.
- Incorrect. In a two-country, two-good scenario, only one country can have a comparative advantage in a particular good. If Canada has it for food, Mexico cannot also have it for food.
e. None of the answer choices are correct.
- Incorrect. Statement b is correct.
Conclusion: The correct statement is b.
Answer:
b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.
b. If Canada has a comparative advantage in the production of food, then Mexico must have a comparative advantage in the production of clothing.
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution The Deep Dive
Let’s break this down! When we say a country has an absolute advantage, it means they can produce more of a good with the same resources than another country. However, having a comparative advantage is about opportunity cost – one country can produce a good at a lower opportunity cost than another.
In short, if Canada excels in food production, it doesn’t automatically mean Mexico is better at clothing (so a is false). If Canada has a comparative advantage in food, Mexico NEEDS to have a comparative advantage in clothing as it focuses its resources on the good it produces best, making b accurate. So, the statement in b is the correct choice!
Now, let’s dive into a fun fact: Did you know that Canada is one of the top food exporters globally? Its vast land and favorable climate make it a goldmine for agriculture! On the flip side, Mexico is famous for its textiles, creating vibrant clothing deeply rooted in rich culture and tradition. This combination creates a unique synergy in global trade!
Also, if you ever ponder the importance of trade shows, look at the benefits: specialization leads to better quality goods at lower prices! By focusing on what they do best, both Canada and Mexico can trade effectively. This harmony showcases the beauty of comparative advantage in action!
