Suppose that Canada and the United States both produce maple syrup and honey, which are sold for the same price in both countries. These are the combinations of the two goods that each country can produce in one day, using the same amounts of capital and labor:

a. Which country has a comparative advantage in producing maple syrup? Which country has a comparative advantage in producing honey?
b. Suppose that Canada is currently producing 30 tons of honey and 15 tons of maple syrup per day, and the United States is currently producing 10 tons of honey and 40 tons of maple syrup per day. Demonstrate that Canada and the United States can both be better off if they specialize in producing only one good and trade for the other.
c. Illustrate your answer to part (b) by drawing a PPF for Canada and a PPF for the United States. Show on your PPFs the combinations of honey and maple syrup produced and consumed in each country before and after trade.

Transcribed Image Text:

Honey (in tons) 0 10 20 30 40 Canada Maple Syrup (in tons) 60 45 30 15 0 United States Honey (in tons) 0 10 20 30 40 50 Maple Syrup (in tons) 50 40 30 20 10 0