Rishi Bhagat

Ms. Martin
AP Economics – C
9/10/2020

Module 4 Questions

1. In Italy, an automobile can be produced by 8 workers in one day and a washing

machine by 3 workers in one day. In the United States, an automobile can be
produced by 6 workers in one day, and a washing machine by 2 workers in one day.
a. Which country has an absolute advantage in the production of automobiles?
In washing machines?

United States for both because it takes fewer Americans to produce automobiles and
washing machines compared to Italy.

b. Which country has a comparative advantage in the production of washing

machines? In automobiles?

Italy for cars since production is lower than the US. The US has a comparative advantage
in the production of washing machines.

c. What type of specialization results in the greatest gains from trade between
the two countries?

The greatest gains from trade is achieved when a country specializes in the good where
they have a comparative advantage (the US in washing machines and Italy in
automobiles).

2. Refer to the story of Alex and Kirk illustrated by Figure 4.1 in the text. Explain why
Alex and Kirk are willing to engage in a trade of 1 fish for 1½ coconuts.

1
At a trade of 1 fish for 1 coconuts, Alex gives up less for fish than he would if he were to
2
catch the fish himself. In essence, he gives up less than 2 coconuts for 1 fish. Similarly, Kirk
gives up less for a coconut than if he were to gather them himself. In the trade, a coconut

1 2 4
costs 1 , which equals of a fish, less than the of a fish he would give up without the
2 3 3
Rishi Bhagat
Ms. Martin
AP Economics – C
9/10/2020

trade. The entire trade deal rests on the opportunity cost versus the return. If the return is
greater than the opportunity cost, the deal is advantageous to the party.