Suppose that the table in Review Question 3.1 looks as follows. Use the information to answer questions a through f.

a. Is there an absolute advantage or disadvantage here for the countries? Why?

b. For Italy, what is the relative advantage that sets up further specialization? What about the United Kingdom?

c. What are the gains of the countries after specialization?

d. What is the opportunity cost of wine and wool?

e. Which country has a comparative advantage in wine? In wool? Explain your answer.

f. Draw a hypothetical PPC for the United Kingdom and label its slope. Suppose that the United Kingdom follows its comparative advantage in deciding where to produce on its PPC. Label its production point. What are the upper/lower bounds for the trade price of wine/wool?

Question 3.1

Use the information in the following table on labor productivities in Italy and the United Kingdom to answer questions a through f.

Transcribed Image Text:

Labor per Unit per Hour Worked Italy 9 units 12 units Wine Wool United Kingdom 10 units 8 units