Suppose there are two nearby villages in Western Washington State: Terracota Village and Clay Village. They currently do not trade with the world, or with each other, and the only two goods they produce are canoes and salmon. Due to slight differences in terrain, proximity to water, and availability of timber, people in these towns have different productivities. The table below shows the amount of time it takes one adult from each village to produce a pound of salmon and a canoe:

	1 lb. Salmon	1 Canoe
Terracota Village	1 hour	20 hours
Clay Village	2 hours	30 hours

Each person in this village is willing to work 120 hours per month. There are 100 adults in each town.

A) Draw the PPF for each town, with Canoes on the horizontal axis.

B) Which town has absolute advantage in the production of Salmon? Which town has absolute advantage in the production of Canoes?

C) Which town has comparative advantage in the production of Salmon? Which town has comparative advantage in the production of Canoes?

D) Assume each person in each village spends half their working time fishing and the other half making canoes. If no trade takes place, what is each village's total monthly production of each item?

E) Explain carefully how trading at an exchange rate of 18 lbs. of salmon per canoe can benefit both villages.