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.
Which country has an absolute advantage in the production of automobiles? In washing machines?
Which country has a comparative advantage in the production of washing machines? In automobiles?
What type of specialization results in the greatest gains from trade between the two countries?
Refer to the story of Tom and Hank illustrated by Figure 4.1 in the text. Explain why Tom and Hank are willing to engage in a trade of 1 fish for 1½ coconuts.