1. Comparative Advantage Assuming constant opportunity costs, suppose Mickey can produce either 600 cheese and 0 crackers, or 0 cheese and 200 crackers; and Minnie can produce either 300 cheese and 0 crackers, or 0 cheese and 900 crackers. a. State who has a comparative advantage in cheese. Explain why. [5 points] b. Without trade Mickey produces 300 cheese and 100 crackers, and Minnie produces 150 cheese and 450 crackers. If the terms of trade are 2 cheese = 3 cracker, what are the gains from specialization and trade for each good to each trader if Mickey trades 200 units of the good he has a comparative advantage in? [5 points]

2. Supply and Demand a. Given: QD = 100 - P and QS = P - 20, what is the market equilibrium price (P*) and quantity (Q*)? [5 points] b. Suppose the market changes to: QD = 100 - P and QS' = 2P - 2. Calculate the new market equilibrium price (P**) and quantity (Q**). [5 points]

3. Price Elasticity a. Use your answers in the supply and demand question above, to calculate the midpoint formula for the price elasticity of demand (two decimal places). [4 points] b. Using your answer in part a, is the price elasticity of demand: elastic, inelastic or unit elastic? [3 points] c. State how you were able to determine if the price elasticity of demand is elastic, inelastic or unit elastic. [3 points]