Elucidate the concepts of comparative and absolute advantage

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Reference no: EM1352007

Elucidate the concepts of Comparative and Absolute Advantage.

Suppose the USA and Canada are considering to trade. Assume there are only two goods in the economy: wheat and corn. The table below illustrates what each country can produce in a given year.

Wheat Corn
USA 4 2
Canada 5 8

In this case, which country should produce wheat? Why? Hint: Compute the opportunity cost for each country. For instance, USA can produce 4 units of wheat OR 2 units of Corn. In this case, if the USA produces one unit of corn, then it has to give up 2 units of wheat.

Reference no: EM1352007

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