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a.Alan received two copies of Gears of Waras birthday gifts. Burton received two copies of Haloas birthday gifts.b.Jeb has a free subscription to Field and Streambut isn’t interested in hunting. George has a free subscription to the Miami Heraldbut isn’t all that interested in Florida news.c.Pat has a lot of love to give, but it is worthless unless received by another. Terry is in the same sad situation.4. a.Alan could give one of his copies of Gears to Burton, who could offer one of his copies of Halo.b.They could swap free subscriptions, and both be better off, especially if both men have the last name Bush. At the very least, both parties are no worse off after the exchange.c.If they offer love to each other, both will be better off at no cost: A classic positive-sum game.SolutionSolutionSolutionCowen3e_CH02_Solutions.indd 526/06/15 8:13 PM
S-6•CHAPTER 2• The Power of Trade and Comparative Advantage5.Many people talk about manufacturing jobs leaving the United States and going to other places, like China. Why isn’t it possible for all jobs to leave the United States and go overseas (as some people fear)?5.This is not possible because every nation has to have a comparative advantage in something. The greater China’s comparative advantage in manufacturing, for example, the greater the United States’ comparative advantage must be in some other type of production. (This can be seen in Table 2.1: The numbers in each row are just reciprocals, so the lower the opportunity cost of a shirt in Mexico, the greater the opportunity cost of a computer in Mexico.) The more and more that firms want to locate manufacturing processes in countries like China, the more that those countries would give up (the higher the opportunity cost) if they pursued other nonmanufacturing activities. Even if it were cheaper to produce everything in China—thus giving China something like an absolute advantage in all production—trade is based on comparative advantage, not absolute advantage.6.Suppose the following table shows the number of labor hours needed to produce airplanes and automobiles in the United States and South Korea, but one of the numbers is unknown.Number of Hours to Number of Hours toProduce One Airplane Produce One AutoSouth Korea 2,000 ?United States 800 5a.Without knowing the number of labor hours required to produce an auto in South Korea, you can’t figure out which country has the comparative advantage in which good. Can you give an example of a number for the empty cell of the table that would give the United States the comparative advantage in the production of airplanes? What about South Korea?b.Who has the absolute advantage in the production of airplanes? What about autos? c.What exact number would you have to place in the empty cell of the table for it to be impossible that trade between the United States and South Korea could benefit both nations?