1.Consider Australia and Japan which can both produce Liquified Natural Gas (LNG) or passenger vehicles. In a year, Australia can produce 80 billion tonnes of LNG or it can produce 2.0 million passenger vehicles.In a year, Japan can produce 120 billion tonnes of LNG or it can produce 6.0 million passenger vehicles.

i.Explain which country has the comparative advantage in passenger vehicles.

ii.If Australia were to trade its 40 billion tonnes of LNG for passenger cars from Japan, what is the minimum number of cars Australia would accept and what is the maximum number of passenger vehicles Japan would pay?Why?

2. Why do most economists advocate only using the tax/welfare system to address equity concerns from welfare analysis, rather than altering prices?