Assume the following information about Russia and Canada for the production of cases of vodka and pallets of construction grade 2 x 4 lumber. With one unit of production (a mixture of land, labor, capital, and technology) Russia can produce 10 cases of vodka or 8 pallets of 2 x 4 lumber. Canada can produce 6 cases of vodka or 12 pallets of 2 x 4 lumber with each unit of production. Each country dedicates a total of 1000 units of production for vodka and lumber. This information is reproduced in the following table.

Country Vodka (Cases) Lumber (Pallets)

Russia 10 8

Canada 6 12

1. If Russia and Canada each dedicate 400 units of production to vodka and 600 units of production to lumber, what is the total amount of vodka and lumber that will be produced?

(a) 10,000 cases of vodka and 12,000 pallets of lumber

(b) 6,400 cases of vodka and 12,000 pallets of lumber

(c) 9,600 cases of vodka and 8,000 pallets of lumber

(d) 12,000 cases of vodka and 10,000 pallets of lumber

Answer:

2. If Russia and Canada decide to specialize in the production of vodka and lumber, what is the total amount of vodka and lumber that will be produced?

(a) 12,000 cases of vodka and 10,000 pallets of lumber

(b) 9,600 cases of vodka and 8,000 pallets of lumber

(c) 10,000 cases of vodka and 12,000 pallets of lumber

(d) 6,600 cases of vodka and 12,000 pallets of lumber

Answer:

3. It will be beneficial for both Russia and Canada to trade as long as the trading ratio of vodka to lumber is between _________________.

(a) 5/3 and 5/4

(b) 1/2 and 1/4

(c) 4/5 and 2/1

(d) 5/4, and 1/2

Answer:

4. At a trading ratio of 7/8 (cases of vodka for pallets of lumber), or 7 cases for 8 pallets of lumber

(a) Russia gains 100% of the benefits of trade

(b) Canada gains 100% of the benefits of trade

(c) Canada and Russia evenly split the advantage brought about by trade

(d) In this example, neither country benefits from international trade

Answer: