the comparative advantage in meatball production. The Frivoli’s opportunity cost of spaghetti is 3 / 2 pounds of meatballs and the Tivoli’s is 5 / 3 pounds of meatballs, so the Frivoli have the comparative advantage in spaghetti production. 5. According to the U.S. Census Bureau, in July 2006 the United States exported aircraft worth $1 billion to China and imported aircraft worth only $19,000 from China. During the same month, however, the United States imported $83 million worth of men’s trousers, slacks, and jeans from China but exported only $8,000 worth of trousers, slacks, and jeans to China. Using what you have learned about how trade is determined by comparative advantage, answer the following questions. a. Which country has the comparative advantage in aircraft production? In produc- tion of trousers, slacks, and jeans? b. Can you determine which country has the absolute advantage in aircraft produc- tion? In production of trousers, slacks, and jeans? 5. a. Since countries gain from specializing in production of the goods and services in which they have a comparative advantage, the United States must have the com- parative advantage in aircraft production, and China must have the comparative advantage in production of trousers, slacks, and jeans. b. Since trade has nothing to do with absolute advantage, we cannot determine from this data which country has an absolute advantage in either of these goods. 6. Peter Pundit, an economics reporter, states that the European Union (EU) is increas- ing its productivity very rapidly in all industries. He claims that this productivity advance is so rapid that output from the EU in these industries will soon exceed that of the United States and, as a result, the United States will no longer benefit from trade with the EU. a. Do you think Peter Pundit is correct or not? If not, what do you think is the source of his mistake? b. If the EU and the United States continue to trade, what do you think will charac- terize the goods that the EU exports to the United States and the goods that the United States exports to the EU? 6. a. Peter Pundit is not correct. He confuses absolute and comparative advantage. Even if the EU had an absolute advantage over the United States in every product it pro- duced, the United States would still have a comparative advantage in some prod- ucts. And the United States should continue to produce those products: trade will make both the EU and the United States better off. b. You should expect to see the EU export those goods in which it has the compara- tive advantage and the United States export those goods in which it has the com- parative advantage. E C O N O M I C M O D E L S : T R A D E - O F F S A N D T R A D E S-15 S11-S22_Krug2e_Macro_PS_Ch02.qxp 2/25/09 7:59 PM Page S-15
Solution 7. You are in charge of allocating residents to your dormitory’s baseball and basketball teams. You are down to the last four people, two of whom must be allocated to base- ball and two to basketball. The accompanying table gives each person’s batting aver- age and free-throw average.
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