Question

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

Pairs of RedSocks Pairs of White Socks
per Worker perHour per Worker per Hour

Boston 3 3
Chicago 2 1

a. Without trade, what is the price of white socks (in terms of redsocks) in Boston? And, what is the price in Chicago?
b.which city has an absolute advantage in the production of each color sock? Which city has a comparative advantage in the production of each color sock?
c. if the cities trade with each other, which color sock will each export?
d. what is the range of prices at which trade can occur?

Answer 1

a) Boston 1 white sock for one red sock
Chicago 1 white sock for 2 red socks

b) Boston has the absolute advantage because it can produce more of either sock per hour.
Chicago has a comparative advantage in producing red socks because it can produce two red socks by giving up one white sock; Boston can only produce one red sock by giving up one white sock.
Boston has the comparative advantage in white socks.
c) Countries export what they have a comparative advantage in, so Boston will export white socks and Chicago will export red socks.
d) 1 white sock for 2 red socks to one white sock for one red sock.