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c. 2 and a half tons of grain. 2/5 of a car. 1 and a quarter tons of grain. 1 fth of a car.

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d. There is no absolute advantage in cars. America has absolute advantage in grain.

e. America has a comparative advantage in producing Grain. Japan has comparative advantage in producing Computers.

f. America produces 2 cars and 5 tons of grain. Japan produces 2 cars and 2.5 tons of grain.

g. If America makes only grain and Japan only computers and they trade, both countries will have production outside of their PPF
3. a. R P IR tap
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If Pat makes a pizza, she sacri ces 1/2 a gallon of root beer. If Kris makes a pizza, she sacri ces 2/3 a gallon of root beer. Kris has an
absolute advantage in making pizza. Pat has a comparative advantage in making pizza.

b. Pat will trade pizza for root beer and Kris will trade root beer for pizza.

c. If Pat trades a pizza for 1.75 gallons of root beer both will bene t.

4.a. One car costs 15 bushels of wheat. One bushel of wheat costs 1/15 of a car. They are related inversely.

b.

10,000,000car
100,000Wheat
In 10,000,000s

5 29080 gafar
In 10,000,000s

c. Canada should accept the deal. Their opportunity cost is 150,000,000 wheat and America offers 200,000,000 wheat.

5. a. England has an absolute advantage in scones and Scotland has an absolute advantage in sweaters. England has the comparative
advantage in scones and Scotland has the comparative advantage in sweaters.

b. Scotland will trade sweaters for scones. Scotland is more ef cient at making sweaters than England.

c. Both Scotland and England would still bene t from the trade.

6. a. 1 white socks cost 1 red socks. 1 white socks cost 2 red socks. Output is material
Input is hours
b. Boston has absolute advantage in White and Red socks. Boston has the comparative advantage for white socks and Chicago has the
comparative advantage for Red socks.
c. Boston will export white socks and Chicago will export red socks.

d. 1.5 red socks for 1 white socks.

7. a. X > 3. Because Germany is more ef cient at producing cars than wine, France has to be more ef cient at producing wine than cars in
order for them to have gains from trade. Frances opportunity cost has to be less than Germany’s.

b. X < 3. These are the minimum values at which Germany will obtain gains from exporting cars.

8.
A C
China wouldexport100shirts
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c 7 shirts bene ts both countries. c
b. China would export shirts.

c. 1 computer for 5 shirts is the trade off that would both countries may trade. 5 shirts is America’s opportunity cost for making one computer.

d. The pattern of trade would be passive as each country would be as ef cient as the other.

9. a. True. Both their comparative costs would be different so they could lessen the consequences of their opportunity costs.
b. False. There are always opportunity costs and they may have larger opportunity costs than someone who is less skilled.
c. True. If it’s bene cial for one it’s better for both.
d. False. If the two are equally ef cient there may be no bene t.
e. False. Trade is not always good for everyone.