Using the Ricardian Trade Model, suppose that a worker in Canada can make 10kg of potatoes or 20 cups of coffee per month, and a worker in Italy can make 15 kg of potatoes or 60 cups of coffee per month. Assume an equal number of workers in each country

a.

Which country has the Absolute Advantage in which good? (1 mark)

b.

Which country has the Comparative Advantage in which good? (2 marks)

c.

Draw out each country's PPF, and show them consuming 5kg of potatoes in autarky, along with the most coffee they can consume given their production/consumption of potatoes. (2 marks)

d.

Find a price that can make both countries better off. Show how this would affect your graphs from (c). (2 marks)

e.

How much of each good would Canada or Italy import/export to make each country better off than in (c)? There are multiple correct answers possible. (2 marks)

f.

What is the best possible price Canada can get for their export? Is it likely? (1 mark)