Recent orders
The following table describes the production possibilities of two cities in the country of Baseballia
The following table describes the production possibilities of two cities in the country of Baseballia:
PAIRS OF RED PAIRS OF WHITE SOCKS PER WORKER SOCKS PER WORKER
PER HOUR PER HOUR BOSTON 3 3 CHICAGO 2 1
a. Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago?
b. Which city has an absolute advantage in the production of each color sock? Which city has a comparative advantage in the production of each color sock?
c. If the cities trade with each other, which color sock will each export?
d. What is the range of prices at which trade can occur?
Consider once again the farmer and rancher discussed in the chapter
Consider once again the farmer and rancher discussed in the chapter.
a. Suppose that a technological advance makes the farmer better at producing meat, so that he now needs only 2 hours to produce 1 pound of meat. What is his opportunity cost of meat and potatoes now? Does this alter his comparative advantage?
b. Is the deal that the rancher proposes—3 pounds of meat for 1 pound of potatoes—still good for the farmer? Explain.
c. Propose another deal to which the farmer and rancher might agree now.
England and Scotland both produce scones and sweaters
England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour.
a. Which country has the absolute advantage in the production of each good? Which country has the comparative advantage?
b. If England and Scotland decide to trade, which commodity will Scotland trade to England? Explain.
c. If a Scottish worker could produce only 1 sweater per hour, would Scotland still gain from trade? Would England still gain from trade? Explain.