Answer the following questions with reference to Problem 5.

(a) What is the dollar price of wheat and cloth in the United Kingdom if the exchange rate between the pound and the dollar is £1 = $2? Would the United States be able to export wheat to the United Kingdom at this exchange rate? Would the United Kingdom be able to export cloth to the United States at this exchange rate?

(b) What if the exchange rate between the dollar and the pound were £1 = $4?

(c) What if the exchange rate were £1 = $1?

(d) What is the range of exchange rates that will allow the United States to export wheat to the United Kingdom and the United Kingdom to export cloth to the United States?

Use the information for Case B in Table 2.5 and assume that labor is the only factor of production and is homogeneous (i.e., all of one type).

Problem 5

Use the information for Case B in Table 2.5 and assume that labor is the only factor of production and is homogeneous (i.e., all of one type).

Table 2.5

Production Possibilities in the United States and the United Kingdom

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Case A Case B Case C Case D U.S U.K U.S U.K U.S U.K U.S U.K Wheat (bushels/hour) Cloth (yards/hour) 4