Asked by Olatowode Oluwatosin on Jun 18, 2024
Verified
Canada produces MP3 players and lumber, and the horizontal axis for Canada's production possibilities frontier represents the amount of lumber produced. Canada's borders are not initially open to trade, and the country consumes along its production possibilities frontier where the MRT and MRS equal the price ratio for the two products ($200 per 1,000 board-feet of lumber versus $100 per MP3 player) . If Canada opens its borders to trade with China at world prices for the two goods ($300 per 1,000 board-feet of lumber and $100 per MP3 player) , what trade pattern develops for Canada?
A) Canada will import lumber and MP3 players.
B) Canada will import lumber and export MP3 players.
C) Canada will export lumber and import MP3 players.
D) Canada import lumber and MP3 players.
Production Possibilities Frontier
A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.
Trade Pattern
A trade pattern refers to the systematic way in which countries engage in international trade, determined by factors like comparative advantage, geographic location, and economic policies.
World Prices
The international market prices of goods and services, influenced by factors such as supply, demand, and trade policies.
- Explore the consequences of international commerce, considering both comparative and absolute advantage.
- Comprehend the positive outcomes of engaging in trade and its effect on the production and consumption within a nation.
Verified Answer
CC
Christy ChrisJun 20, 2024
Final Answer :
C
Explanation :
With the opening of trade, Canada can benefit from specializing in the production of the good in which it has a comparative advantage. In this case, Canada has a comparative advantage in the production of lumber because its opportunity cost of producing lumber (in terms of MP3 players) is lower than China's opportunity cost. Thus, Canada will export lumber to China, and import MP3 players from China.
Learning Objectives
- Explore the consequences of international commerce, considering both comparative and absolute advantage.
- Comprehend the positive outcomes of engaging in trade and its effect on the production and consumption within a nation.