Question 1
Suppose that the United States and Spain both produce cognac and handbags. In the United States, cognac sells for $20 a bottle and handbags sell for $80. In Spain, cognac sells for 30 euros a bottle and handbags sell for 40 euros. Given this information, trade will flow in both directions if the price of a dollar is between
◦ 1.5 and 2.5 euros.
◦ 2.0 and 3.0 euros.
◦ 0.5 and 0.75 euro.
◦ 0.67 and 2.0 euros.
Question 2
In general, for any two countries, there are many exchange rates that will lead to gains from trade, based on comparative advantage.
◦ true
◦ false