In what product should Canada specialize? In what product should Venezuela specialize?
460 19 • International Trade

Step 1. Make a table like Table 19.12.

Step 2. To calculate absolute advantage, look at the larger of the numbers for each product. One worker in

Canada can produce more lumber (40 tons versus 30 tons), so Canada has the absolute advantage in lumber.

One worker in Venezuela can produce 60 barrels of oil compared to a worker in Canada who can produce only 20.

Step 3. To calculate comparative advantage, find the opportunity cost of producing one barrel of oil in both

countries. The country with the lowest opportunity cost has the comparative advantage. With the same labor

time, Canada can produce either 20 barrels of oil or 40 tons of lumber. So in effect, 20 barrels of oil is equivalent

to 40 tons of lumber: 20 oil = 40 lumber. Divide both sides of the equation by 20 to calculate the opportunity cost
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