The U.S. and Canada both produce hats and scarves. Suppose that the U.S. can produce 600 hats per week or 200 scarves per week. Suppose that Canada can produce 120 hats per week or 300 scarves per week.
(a) Which country has the absolute advantage in the production of each good?
(b) Which country has the comparative advantage in the production of each good? How did you determine your answer?
(c) If the U.S. and Canada decide to trade, what commodity will the U.S. trade to Canada? Explain.