international trade

Question

Two Canadians workers, Sam and Joe, can each produce tv or coffee. Sam can produce either 50 kg of coffee or 1 tv per month. and Joe can produce either 120 kg of coffee or 1 tv per month. 

f) assuming that world prices are such that tv trades for 135 kg of coffee on international markets.



g) what is the most of each good that Canadians can consume when the economy is open?

TV = ?      Coffee= ?

Answer 1

Based on the information provided, Canada has a comparative advantage in producing TVs. In an open economy, the two Canadian workers Sam and Joe should focus entirely on producing TVs as each TV can be traded for 135 kg of coffee (i.e. more coffee than either of them could produce per TV).

Hence, the answer is that Canada can consume a maximum of 2 TVs (produced by Sam and Joe) or 270 kg of coffee (if Sam and Joe trade their 2 TVs for coffee) in an open economy.