You are an entrepreneur who wants to manufacture and sell a product in an industry where other competitors have absolute advantages but you have a comparative advantage.
A) What is comparative advantage and how can you use it to your benefit?
B) Using a product of your choice, create an example of comparative advantage.
C) How could an innovative entrepreneur transform a comparative advantage into an absolute advantage?
You are an entrepreneur who wants to manufacture and sell a product in an industry where other competitors have absolute advantages but you have a comparative advantage.
A) What is comparative advantage and how can you use it to your benefit?
B) Using a product of your choice, create an example of comparative advantage.
C) How could an innovative entrepreneur transform a comparative advantage into an absolute advantage?
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Q2. (35 points) The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.:
| Textiles | Autos | |
| United Kingdom | 16 | 4 |
| United States | 6 | 3 |
A)Which country has an absolute advantage in textiles and which country has an absolute advantage in autos?
B)What is the autarky price ratio of autos relative to textiles in each country?
C)Which country has a comparative advantage in textiles and which country has a comparative advantage in autos?
D)Which product should each country export?
E)Suppose the United States has 300 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States.
F)Suppose the international price is set at 1 auto:3 units of textile and the U.S. decides to completely specialize at producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade and the export and import quantities. For each unit of export good, how much does the U.S. gain (measured in terms of the other good)?
G)Discussion: At what level of international price ratio will all the benefits from trade accrue to the United States?
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