How trade affect the production possibilities frontier

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Reference no: EM1375131

Assume that the United States and Canada are planning to trade. Suppose there are only two goods in the economy: potatoes and rice. The table below illustrates what each country can manufacture in a given year.

Potatoes Rice

USA 8 4

Canada 10 16

1. In this case, which country should produce potatoes? Why? Hint: calculate the opportunity cost for each country. For instance, USA can produce 8 units of potatoes OR 4 units of rice. In this case, if the USA produces one unit of rice, then it has to give up 2 units of potatoes

2. How does trade affect the production possibilities frontier?

3. Provide five factors that can expand the production possibilities frontier.

Reference no: EM1375131

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