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Peru and Canada both produce copper and oil by devoting the time of their workers to one task. Each country has 52 weeks of labor.

Peru and Canada both produce copper and oil by devoting the time of their workers to one task. Each country has 52 weeks of labor. At any given moment in time, workers can only work mining copper or extracting oil.Assume each country wants to sell bundles of a ton of copper plus a barrel of oil.

Peru's payoff is equal to whatever is smaller: the number of tons of copper produced or the number of barrels of oil produced. Similarly, Canada's payoff is equal to whatever is smaller: the number of tons of copper produced or the number of barrels of oil produced.

Suppose Peru and Canada can produce copper and oil as shown in this table:

Available Time Copper per week Oil per week
Peru 52 weeks 400 tons 1,000 barrels
Canada 52 weeks 200 tons 6,000 barrels

Peru can produce 400 tons of copper with one week of labor. Peru can produce 1,000 barrels of oil with one week of labor.Canada can produce 200 tons of copper with one week of labor. Canada can produce 6,000 barrels of oil with one week of labor.

  1. (2 points) Who has a comparative advantage in producing copper? Why? Who has a comparative advantage in producing oil? Why?
  2. (2 points) Without being able to trade how many combos of a ton of copper and a barrel of oil can Peru produce?
  3. (2 points) Without being able to trade how many combos of a ton of copper and a barrel of oil can Canada produce?
  4. (4 points) Is there a trade that will make both of them better off? If a trade that would make both of them better off exists, describe such a trade.If there is not a trade that would make both of them better off explain why.
  5. (2 points) How much better off are Peru and Canada by making the trade you propose? If there is not a trade that would make both of them better off explain why.

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