Solution Found!
The following table describes the production possibilities of two cities in the country
Chapter 3, Problem Problems and Applications 3.6(choose chapter or problem)
The following table describes the production possibilities of two cities in the country of Baseballia:
\(\begin{array}{lcc}
& \begin{array}{c}
\text { Pairs of Red Socks } \\
\text { per Worker per Hour }
\end{array} & \begin{array}{c}
\text { Pairs of White Socks } \\
\text { per Worker per Hour }
\end{array} \\
\hline \text { Boston } & 3 & 3 \\
\text { Chicago } & 2 & 1
\end{array}\)
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?
Questions & Answers
QUESTION:
The following table describes the production possibilities of two cities in the country of Baseballia:
\(\begin{array}{lcc}
& \begin{array}{c}
\text { Pairs of Red Socks } \\
\text { per Worker per Hour }
\end{array} & \begin{array}{c}
\text { Pairs of White Socks } \\
\text { per Worker per Hour }
\end{array} \\
\hline \text { Boston } & 3 & 3 \\
\text { Chicago } & 2 & 1
\end{array}\)
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?
ANSWER:Step 1 of 2
Trade theory is the application of international trade where countries engage in specialization and exchange with others in goods and services. The mercantilist economy was based on the absolute advantage theory of trade, while modern trade is formulated by the comparative advantage theory.