3.1 Use the information in the following table on labor productivities in Italy and

the United Kingdom to answer questions a. through f.

Output per Hour Worked

United Kingdom Italy

Wine 8 units 12 units

Wool 9 units 10 units

a. Is there an absolute advantage for each country in wine or wool? Why?

b. Which country should specialize in wine? In wool? Explain your

answer.

c. What are the gains from specialization for each country?

d. What is the opportunity cost of wine and wool in the United Kingdom?

In Italy?

e. Which country has a comparative advantage in wine? In wool? Explain

your answer.

f. Draw a hypothetical PPC for the United Kingdom and label its slope.

Suppose that the United Kingdom follows its comparative advantage in

deciding where to produce on its PPC. Label its production point. What

are the upper and lower bounds for the trade price of wine? Of wool?

3.2 Suppose the table in Study Question 3.1 looks as follows. Use the information

to answer questions a. through f.

Labor per Unit per Hour Worked

United Kingdom Italy

Wine 10 9

Wool 8 12

a. Is there an absolute advantage for each country in wine or wool? Why?

b. Which commodity should Italy specialize in? What about the United

Kingdom?

c. What are the gains from specialization for each country?

d. What is the opportunity cost of wine? Of wool?

e. Which country has a comparative advantage in wine? In wool? Explain

your answer.

f. Draw a hypothetical PPC for the United Kingdom and label its slope.

Suppose that the United Kingdom follows its comparative advantage in

deciding where to produce on its PPC. Label its production point. What

are the upper and lower bounds for the trade price of wine and wool?