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In an hour, Sue can produce 40 caps, or 4 jackets and Tessa can produce 80...

In an hour, Sue can produce 40 caps, or 4 jackets and Tessa can produce 80 caps or 4 jackets. Would Sue and Tessa have any incentive to specialize? Explain your answers. If Sue and Tessa specialize in producing the good in which they have a comparative advantage, and they trade 1 jacket for 15 caps, who gains from the specialization and trade? Explain your answers. Suppose that Tessa buys a new machine for making jackets that enables her to make 20 jackets an hour. (She can still make only 80 caps per hour.) Would Sue and Tessa still be willing to trade 1 jacket for 15 caps? Explain your answers. Problem 2 Country A has a comparative advantage in cheese and butter due to climate and a large amount of land suitable for dairy cows. Residents in Country A like electronics. Country B has a comparative advantage in electronics because it has an abundance of labor. Residents in Country B love cheese and butter. You are invited to give expertise in terms of trade that will benefit both countries. What would you propose? Why?

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