Part 1

Absolute and Comparative Advantage

Use the table below to answer the questions concerning absolute and comparative advantages.

	Lumber	Automobiles
United States	8	8
Canada	4	2

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?

Part 2

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 “0” (zero) if nothing will occur for that particular variable, a “+” (plus) if an increase, or a “-“ (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.

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