Question 2

Consider two countries, the United States and Canada, that each produce only two goods, lumber and steel. Each country in endowed with a specific amount of labor and has a unit labor requirement for producing each product. The figure below depicts each country's PPF. PPF_U is the United States' PPF, and PPF_C is Canada's PPF.

Part (i):Which country has the absolute advantage in the production of lumber?

Part (ii):Which country has the absolute advantage in the production of steel?

Part (iii):Which country has the comparative advantage in the production of lumber?

Part (iv):Which country has the comparative advantage in the production of steel?