The table below presents the production possibilities schedules for the cities of Venice and Florence, each of which produces pasta and wine. Production Possibilities Schedules for Venice and Florence Venice Florence Pasta (pounds) Wine (bottles) Pasta (pounds) Wine (bottles) 40 0 50 0 20 0 20 40 25 0 100 200 Instructions: In parts b and d, round your answers to two decimal places. a. What is Venice's opportunity cost of producing one pound of pasta? 4 bottle(s) of wine 6 bottle(s) of wine 0.25 bottle(s) of wine 1 bottle(s) of wine b. What is Venice's opportunity cost of producing one bottle of wine? pound(s) of pasta c. What is Florence's opportunity cost of producing one pound of pasta? 6 bottle(s) of wine 0.25 bottle(s) of wine 1 bottle(s) of wine 4 bottle(s) of wine d. What is Florence's opportunity cost of producing one bottle of wine? pound(s) of pasta e. (Click to select) has the comparative advantage in producing pasta and (Click to select) has the comparative advantage in producing wine.

Review the numbers for Canada and Venezuela from Table 33.12 which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note: We can think of this ask as the relative price or trade price of lumber. Is the Canadian ask you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.

How does comparative advantage lead to gains from trade?

Table 33.15 shows how the average costs of production for semiconductors (the chips In computer memories) change as the quantity of semiconductors built at that factory increases. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale? If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors? Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.