ONLINECO 

Solution Exercises 7-1.

Chapter 3.Interdependence and the gains from trade. Gregory Mankiw. Principles of Economics.

​

7. England and Scotland both produce scones and sweaters. Suppose that and 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 could produce only 1 sweater per hour, would Scotland still gain from trade? Would England still gain from trade? Explain

​

8. 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? C. Propose another deal to which the farmer and rancher might agree now.

 

9. The following table describes the production possibilities of two cities in the country of Baseballia: 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?

 

10. Suppose that all goods can be produced with fewer worker hours in Germany than in France.A. In what sense is the cost of all goods lower in Germany than in France B. In what sense is the cost of some goods lower in France? C. If Germany and France traded with each other, would both countries be better off as a result? Explain in the context of your answers to parts (a) and (b).

​

11. Are the following statements true or false? Explain in each case. a. “Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods” b. “Certain very talented people have a comparative advantage in everything they do”. c. “If a certain trade is good for one person, it can’t be good for the other one”