The following diagrams show the production possibilities boundaries for Canada and France, both of which produce only two goods, wine and lumber.

a. Which country has the comparative advantage in lumber? Explain.
b. Which country has the comparative advantage in wine? Explain.
c. Suppose Canada and France are initially not trading with each other and are producing at points Q and F1, respectively. Suppose when trade is introduced, the free-trade relative prices are shown by the slope of the dashed line. Show in the diagrams which combination of goods each country will now produce.
d. In this case, what will be the pattern of trade for each country?

Transcribed Image Text:

Lumber Canada 0 Lumber France