Question 1. a/ Two neighbouring towns (town A and town B) intend to trade electricity and water. Town A can trade-off producing 2 units of electricity per day with producing 3 units of water per day. Town B can trade-off producing 4 units of electricity per day with producing 12 units of water per day. Use comparative advantage to determine which town should supply water and which town should supply electricity. Explain your working and answer in words.

b/ Estimate the price range of electricity in terms of water. Explain your working and answer in words.

c/ What are the strengths and weaknesses of the comparative advantage concept?

d/ What effect would protectionist policies have on trade between towns A and B?