1.True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

2.Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States?

3.In France it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia it takes two workers to produce one sweater, and three workers to produce one bottle of wine. Who has the absolute advantage in production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?

4.In Germany it takes three workers to make one television and four workers to make one video camera. In Poland it takes six workers to make one television and 12 workers to make one video camera.

1. Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell?
2. Calculate the opportunity cost of producing one additional television set in Germany and in Poland. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of televisions?
3. Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras?
4. In this example, is absolute advantage the same as comparative advantage, or not?
5. In what product should Germany specialize? In what product should Poland specialize?

5.How can there be any economic gains for a country from both importing and exporting the same good, like cars?

1.How will a stronger euro affect the following economic agents?

1. A British exporter to Germany.
2. A Dutch tourist visiting Chile.
3. A Greek bank investing in a Canadian government bond.
4. A French exporter to Germany.

2.Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound. How will that affect the demand for pounds, supply of pounds, and exchange rate for pounds compared to, say, U.S. dollars?

3.Suppose U.S. interest rates decline compared to the rest of the world. What would be the likely impact on the demand for dollars, supply of dollars, and exchange rate for dollars compared to, say, euros?

4.Suppose Argentina gets inflation under control and the Argentine inflation rate decreases substantially. What would likely happen to the demand for Argentine pesos, the supply of Argentine pesos, and the peso/U.S. dollar exchange rate?

5.This chapter has explained that "one of the most economically destructive effects of exchange rate fluctuations can happen through the banking system," if banks borrow from abroad to lend domestically. Why is this less likely to be a problem for the U.S. banking systemr?