Chapter 8, Problem 1P

To determine

1. The US and Canadian production possibility frontiers in two separate diagrams with footballs on the horizontal axis and lumber on the vertical axis.
2. In autarky, if the United States wants to consume 500 footballs, how much lumber it can consume at most. Label this point in diagram as A. If Canada wants to consume 1 ton of lumber, in autarky how many footballs it can consume. Label this point as C in the diagram.
3. The country having absolute advantage in lumber production
4. The country having comparative advantage in lumber production.
5. Each country specializes in the good in which it has the comparative advantage and there is trade. Footballs produce by the United States. Lumber produced by the Canada.
6. If it is possible for the United States to consume 500 footballs and 7 tons of lumber. Label this point B. Whether it is possible for Canada at the same time to consume 500 footballs and 1 ton of lumber. Label this point as D.

Concept Introduction:

Constant opportunity cost - It implies to the cost where funds and resources are allocated to one project but could have been allocated to some other project instead.