Question

U Question 23 8 pts Using the data in the accompanying table, answer the following questions: For which good does Canada have a comparative advantage? Select) > For which good does Italy have a comparative advantage? [Select Currently, Canada's economy is producing and consuming at point B, and Italy's economy is producing and consuming at point C. If both agree to specialize and trade at the term 40X-40, determine what gains for both countries.(example 1x:17) Canada's gains in the specialization-trade case: Select Italy's gains in the specialization-trade case: Select CANADA ITALY Points on PPF Good X Good Y Good X Good Y A 150 o 0 90 B 100 25 60 60 n 50 50 30 120 D 0 75 0 180

Answer 1

Canada have comperative advantage in producing Good X because when canada wants to produce one more unit of Good X it has to sacrifice 1/2 unit of good Y, on the other hand if Canada wants to produce one more unit of Good Y it has to sacrifice 2 units of Good X. So Canada has a comparative advantage in producing Good X.

Italy have comperative advantage in producing Good Y because when Italy wants to produce one more unit of Good Y it has to sacrifice 1/2 unit of good X, on the other hand if Italy wants to produce one more unit of Good X it has to sacrifice 2 units of Good Y. So Italy has a comparative advantage in producing Good Y.

When both countries trade with each other 40X = 40Y. It means both Canada and Italy exchange 40 unit of good X and 40 unit of Good Y with each other. Hence Canada export Good X to Italy and Italy export Good Y to Canada.

Canada gain from trade after specilization because before specilization Canada has to sacrifice 80 unit of Good X to produce 40 unit of good Y but after specilization Canada only need to sacrifice 40 unit of Good X to exchange 40 unit of Good Y from italy.

Italy gain from trade after specilization because before specilization Italy has to sacrifice 80 units of Good Y to produce 40 units of good X but after specilization Italy only need to sacrifice 40 unit of Good Y to exchange 40 unit of Good X from Canada.