Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 3, Problem 6PA
Subpart (a):
To determine
Calculate
Subpart (b):
To determine
Calculate opportunity cost.
Subpart (c):
To determine
Specialization in the production.
Subpart (d):
To determine
Trade and the price of the product.
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The following table describes the production possibilities of two cities in the country of Baseballia:
Pairs of Red Socks per Worker per Hour
Pairs of White Socks per Worker per Hour
Boston
3
3
Chicago
2
1
Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago?
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?
If the cities trade with each other, which color sock will each export?
What is the range of prices at which mutually beneficial trade can occur?
CHA
The following table describes the production
possibilities of two cities in the country of Baseballia:
Pairs of Red
Pairs of White
Socks per Worker
per Hour
Socks per Worker
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 mutually
beneficial trade can occur?
The following table describes the production possibilities of two cities in the country of Baseballia:
Pairs of Red Socks per Worker per Hour
Pairs of White Socks per Worker per Hour
Boston
5
2
Chicago
4
3
Without trade, the price of a pair of white socks (in terms of red socks) in Boston is of red socks, and in Chicago it is of red socks.
has an absolute advantage in the production of red socks, and has an absolute advantage in the production of white socks.
has a comparative advantage in the production of red socks, and has a comparative advantage in the production of white socks.
If the cities trade with each other, Boston will export socks, and Chicago will export socks.
The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is of red socks per pair of white socks, and the lowest price that makes…
Chapter 3 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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