Absolute and Comparative Advantage
Use the table below to answer the questions concerning absolute and comparative advantages.
Lumber
Automobiles
United States
8
8
4
2
Canada
1. Which country has an absolute advantage in producing lumber?
2. Which country has an absolute advantage in producing automobiles?
3. Which country has a comparative advantage, if any, in producing lumber?
4. Which country has a comparative advantage, if any, in producing automobiles?
5. Should the U.S. trade with Canada? If so, what should be imported and what should be
exported?
6. Should Canada trade with the U.S.? If so, what should be imported and what should be
exported?
Demand and Supply Exercises
Directions: Fill in the boxes (QD, QS, D, S, P, Q) in the next three demand and supply exercises.
Based upon the event, what can we expect to occur for the market? Use a (zero) if nothing
will occur for that particular variable, a Ô (plus) if an increase, or a S (negative) if a
reduction. QD stands for Quantity Demanded, QS for Quantity Supplied, D for Demand, S for
Supply, P for Price, and Q for Quantity.
Problem 1
QD
QS
D
S
P
Q
Problem 2
QD
QS
D
S
P
Q
QS
D
S
P
Q
Problem 3
QD
Gross Domestic Product
Use the data chart to answer the questions below.
Consumption
$500
Government Expenditures
$200
GNP
$800
Gross Private Domestic
Investment
$100
Imports
$100
Exports
$50
Questions:
1. Using the data above, GDP is equal to __________________.
2. Using the data above, Net Exports is equal to _____________.
3. Using the data above, PCE (Personal Consumption Expenditure) is equal to
_____________.
4. If the dollar amounts of the items above are the nominal amounts in year 2017, and the
quantities of units are identical in years 2010 and 2017, but prices in 2010 were 20%
less than 2017, Real GDP in 2017 using 2010 as the base year is equal to
_______________.
Effects of Free Trade and Restrictions
Use the graph below to answer the following questions:
The graph above shows the demand and supply of wrenches for the country of Spain.
1. If trade is avoided, Spain consumes _____ wrenches at a price of _____ per wrench.
2. With free trade, for a world price of $4 per wrench, Spain is producing _____wrenches.
3. With free trade, for a world price of $4 per wrench, Spain is consuming _______
wrenches.
4. With free trade, for a world price of $4 per wrench, Spain is importing
_________wrenches.
5. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2,
Spain produces ____________ and imports __________wrenches.
6. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2,
how much tariff revenue will the Spainàgovernment collect? _____

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