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1. The principle of comparative advantage asserts that a. not all countries can benefit from trade with other countries. b. tFigure 9-1 The figure illustrates the market for wool in Scotland. 1 Price Domestic supply World price VH Domestic demand 1 2Figure 9-2 Price of Baskets $14 Domestic Supply World Price ܂ 7 -- ---- ܝܫ ܚܫ ܝܝ ܝ ܝ ܝ ܝ ܝ ܝ ܝ ܝ ܝܫ Domestic Demand QuantityFigure 9-6 Price of Carnations $14 Domestic Supply 8 + ----- Tariff World Price Domestic Demand 100 200 300 400 500 600 QuantFigure 9-9 Price Domestic Supply World Price Domestic Demand Quantity 7. Refer to Figure 9-9. Total surplus in this market afFigure 9-12 Price Domestic Supply World Price Domestic Demand 200 400 600 800 1000 1200 1400 Quantity 8. Refer to Figure 9-12Scenario 9-2 • For a small country called Boxland, the equation of the domestic demand curve for cardboard is @= 200 - 2P, wh

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Answer #1

Answer 1. countries can become better off by specializing in what they do best

Reason- Trade between nations takes place on the basis of comparative advantage. Country which can produce a good at lower opportunity cost than other countries will export the good.

Answer 2. other countries have a comparative advantage over Canada and Canada will import tomatoes.

reason- World price is lower than Canadian price, it means other countries have comparative advantage.

Answer 3. trade results in an increase in total surplus

Reason- Import reduces producer surplus, increases consumer surplus and Export reduces consumer surplus, increases producer surplus. In both cases decrease is less than increase. So overall total surplus always increases

Answer 4. Scotland has comparative advantage in producing wool, relative to the rest of the world.

Reason- As World price is more than domestic price for wool.

Answer 5. export 65 basket

reason- export=Supply - Demand at world prices

Export= 105-40=65

Answer 6 Import 400 carnations

reason- Before tariff, world prices will prevail.

Import= Demand- supply at world price

Import= 500-100=400

Note-According to HOMEWORKLIB RULES first four parts can be answered

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