1.)

The following table describes the production possibilities of two cities in the country of Baseballia:

	Pairs of Red Socks per Worker per Hour	Pairs of White Socks per Worker per Hour
Boston	3	3
Chicago	2	1

Without trade, the price of a pair of white socks (in terms of red socks) in Boston is1 pair, 1/2 pair, 2 pairsof red socks, and in Chicago it is1 pair, 1/2 pair, 2 pairsof red socks.

Chicago/Bostonhas an absolute advantage in the production of red socks, andChicago/Bostonhas an absolute advantage in the production of white socks.

Chicago/Bostonhas a comparative advantage in the production of red socks, andChicago/Bostonhas a comparative advantage in the production of white socks.

If the cities trade with each other, Boston will export white/redsocks, and Chicago will export white/redsocks.

The price of white socks can be expressed in terms of red socks. The highest price at which white socks can be traded that would make both cities better off is1 pair, 1/2 pair, 2 pairsof red socks per pair of white socks, and the lowest price that makes both cities better off is1 pair, 1/2 pair, 2 pairsof red socks per pair of white socks.

2.)

Suppose that Portugal and Germany both produce rye and wine. Portugal's opportunity cost of producing a bottle of wine is 5 bushels of rye while Germany's opportunity cost of producing a bottle of wine is 10 bushels of rye.

By comparing the opportunity cost of producing wine in the two countries, you can tell thatGermany/Portugalhas a comparative advantage in the production of wine andGermany/Portugalhas a comparative advantage in the production of rye.

Suppose that Portugal and Germany consider trading wine and rye with each other. Portugal can gain from specialization and trade as long as it receives more than1 bushel, 1/10 bushel, 1/5 bushel, 5 bushel, 10 bushelof rye for each bottle of wine it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than1 bottle, 1/10 bottle, 1/5 bottle, 5 bottle, 10 bottleof wine for each bushel of rye it exports to Portugal.

Based on your answer to the last question, which of the following prices of trade (that is, price of wine in terms of rye) would allow both Germany and Portugal to gain from trade?Check all that apply.

___1 bushel of rye per bottle of wine

___2 bushels of rye per bottle of wine

___6 bushels of rye per bottle of wine

___9 bushels of rye per bottle of wine