4. Suppose that Ontario and Vermont each produce two goods, maple syrup (M) andhockey sticks (H). The quantities of each good that can be produced by each region in aday are given below:ONTARIOVERMONTGALLONS OF MAPLE SYRUP/DAY4001200HOCKEY STICKS/DAY200300a. Which region has an absolute advantage in maple syrup production? Whichregion has an absolute advantage in hockey stick production?b. Find the opportunity costs of each good for both Ontario and Vermont.c. Should Ontario and Vermont specialize and trade? Which good should beproduced by Ontario? Vermont?d. What are the terms of trade? Use PPCS and CPCS to show that each would bebetter off through specialization and trade.e. Of what principle does this question provide an example?

Answered: 4. Suppose that Ontario and Vermont…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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4. Suppose that Ontario and Vermont each produce two goods, maple syrup (M) and
hockey sticks (H). The quantities of each good that can be produced by each region in a
day are given below:
ONTARIO
VERMONT
GALLONS OF MAPLE SYRUP/DAY
400
1200
HOCKEY STICKS/DAY
200
300
a. Which region has an absolute advantage in maple syrup production? Which
region has an absolute advantage in hockey stick production?
b. Find the opportunity costs of each good for both Ontario and Vermont.
c. Should Ontario and Vermont specialize and trade? Which good should be
produced by Ontario? Vermont?
d. What are the terms of trade? Use PPCS and CPCS to show that each would be
better off through specialization and trade.
e. Of what principle does this question provide an example?

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Answer:

Given,

	ONTARIO	VERMONT
GALLONS OF MAPLE SYRUP/DAY	400	1200
HOCKEY STICKS/DAY	200	300

(a). If a country produces the maximum amount of a good using the available resources then it is said to have an absolute advantage in the production of that good.

VERMONT has an absolute advantage in the production of maple syrup. It is because it produces more than ONTARIO (1200>400).

VERMONT has an absolute advantage in the production of hockey sticks. It is because it produces more than ONTARIO (300>200).

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