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Suppose Canada produces only cars and trucks. The resources that are used in the production of these two goods are

not specialized—that is, the same set of resources is equally useful in producing both trucks and cars.

The shape of Canada's production possibilities frontier (PPF) should reflect the fact that as Canada produces more trucks and fewer cars, the opportunity cost of producing each additional truck   Blank?

-decreases

-increases

-remains constant

Based on the previous description, the tradeoff Canada faces between producing trucks and cars is best represented by   BLANK?

-GRAPH 1

-GRAPH 2  .

New part:

Suppose that Spain and Tunisia both produce oil and wine. Spain's opportunity cost of producing a bottle of wine is 5 barrels of oil while Tunisia's opportunity cost of producing a bottle of wine is 10 barrels of oil.

By comparing the opportunity cost of producing wine in the two countries, you can tell that  BLANK? has a comparative advantage in the production of wine and   BLANK? has a comparative advantage in the production of oil.

First blank

-Tunisia

-Spain

Second blank

-Tunisia

-Spain

Suppose that Spain and Tunisia consider trading wine and oil with each other. Spain can gain from specialization and trade as long as it receives more than   Blank? of oil for each bottle of wine it exports to Tunisia. Similarly, Tunisia can gain from trade as long as it receives more than  Blank? of wine for each barrel of oil it exports to Spain.

First blank

-1 barrel

-1/10 barrel

-1/5 barrel

-5 barrels

-10 barrels

Second blank

-1 barrel

-1/10 barrel

-1/5 barrel

-5 barrels

-10 barrels

Based on your answer to the last question, which of the following prices of trade (that is, price of wine in terms of oil) would allow both Tunisia and Spain to gain from trade? Check all that apply.

-1 barrel of oil per bottle of wine

-7 barrels of oil per bottle of wine

-11 barrels of oil per bottle of wine

-6 barrels of oil per bottle of wine

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