Question 1:

Using the same amount of resources, the United States and Canada can both produce lumberjack shirts and lumberjack boots, as shown in the following production possibilities frontiers.

a. Who has a comparative advantage in producing lumberjack boots? Who has a comparative advantage in producing lumberjack shirts? Explain your reasoning.

b. Does either country have an absolute advantage in producing both goods? Explain.

c. Suppose that both countries are currently producing three pairs of boots and three shirts. Show that both can be better off if they each specialize in producing one good and then engage in trade.

Question 2:

Suppose that France and Germany both produce schnitzel and wine. The following table shows combinations of the goods that each country can produce in a day.

a. Who has a comparative advantage in producing wine? Who has a comparative advantage in producing schnitzel?

b. Suppose that France is currently producing 1 bottle of wine and 6 pounds of schnitzel, and Germany is currently producing 3 bottles of wine and 6 pounds of schnitzel. Demonstrate that France and Germany can both be better off if they specialize in producing only one good and then engage in trade.