Assume that the U.S. can produce either 10 million cell phones or 20 million picture frames and that Canada can produce either 2 million cell phones or 6 million picture frames. Based on this information, which of the following is true?
a. Both countries could benefit if the U.S. traded cell phones to Canada for picture frames.
b. Both countries could benefit if the U.S. traded picture frames to Canada for cell phones.
c. Canada could gain from trade but the U.S. could not.
d. The U.S. could gain from trade but Canada could not.
Question 2
According to the Ricardian model, the source of comparative advantage is:
a. differences in labor productivity in the different countries.
b. differences in foreign trade policies followed by the governments of the various countries.
c. differences in resource endowments of the economies.
d. differences in the fields of research and development in the countries.
e. differences in the taste and preferences of the consumers in the different countries.
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