Use the information in the following table on labor productivities in Italy and the United Kingdom to answer questions a through f a Is there an absolute advantage or disadvantage here for the countries Why b What is the relative advantage, which provides scope for further specialization, for Italy...

Lets analyze the data Country Wine unitshour Wool unitshour UK 8 9 Italy 12 10 a Absolute Advantage A country has an absolute advantage if it can produce more of a good using the same amount of resour ...

Use the information in the following table on labor productivities in Italy and the United Kingdom to

Question:

Use the information in the following table on labor productivities in Italy and the United Kingdom to answer questions a through f. Output per Hour Worked United Kingdom 8 units 9 units Wine Wool Italy 12 units 10 units

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

b. What is the relative advantage, which provides scope for further specialization, for Italy and the United Kingdom?

c. What are the gains of the countries’ 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?

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