5. Comparative Advantage

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 is of red socks, and in Chicago it is of red socks.

has an absolute advantage in the production of red socks, and has an absolute advantage in the production of white socks.

has a comparative advantage in the production of red socks, and has a comparative advantage in the production of white socks.

If the cities trade with each other, Boston will export socks, and Chicago will export socks.

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 is of red socks per pair of white socks, and the lowest price that makes both cities better off is of red socks per pair of white socks.