Economist would say that the United States has a comparative advantage in shoemaking and Canada has a comparative advantage in shirt making. The opportunity cost to produce 80 shirts was the 100 shoes that could have been produced with the same resources. In the terms of trade each reduce each country s opportunity cost of acquiring the goods traded for, trade will take place. In this example, Canada will not accept fewer than 80 shoes for 75 shirts and the United States will not pay more than 100 shoes for 80 shirts. Both countries must benefit for trade to occur.
Trade involves many different countries and products.
It is not always clear where a country s comparative advantage lies. Discuss the opportunity costs involved and how comparative advantage has influenced your decision. Mention likely trading partners.