1. Using the data in the accompanying table, answer the following questions:

a.For which good does Canada have a comparative advantage?

b.For which good does Italy have a comparative advantage?

c.What might be a set of favorable terms of trade for the two countries?

d.Prove that both countries would be better off in the specialization-trade case than in the no-specialization-no-trade case.

Points on Production CANADA ITALY Possibilities Frontier Good X Good Y Good X Good Y A 150 O 90 O B 100 25 60 60 50 50 30 120 75 0 180