Question

Question 21 2.5 pts The following chart shows the yearly productivities of the average U.S.worker and the average French worker in wine and bread. WINE BREAD (loaves/worker) (bottles/worker) U.S. 20 60 France 10 10 According to our trade models, which of the following statements is true? O Mutually beneficial trade is not possible in this case because France is equaly productive in both wine and bread Mutually beneficial trade can occur at aratio of a loaf of bread per bottle of wine. O Mutualy heneficial trade. n ocrur at a ratio of Wa battle of wine per loat ot bread O Mutually beneficial trade is not possible in this case because the U.s. has an absolute advantage in both wine production and bread production Question 22 2,5 pts Asmall country opens Its domestic wheat market to free International trade and, as a result. the equilibrium price of wheat drops but the equilibrium quantlty of wheat consumed stays the same as it was In autarky (the no trade case). Which of the following explains these observations? O The country imports wheat, and domestic demand for wheat is perfectly inelastic. The country exports wheat, and domestic demand for wheat is perfectly inelastic. O The country imports wheat, and domestic demand tor wheat is unit elastic The country exports wheat and domestic demand for wheat is unit elastic.

Answer 1

Question 21

We can see that US is producing more wine and bread compared to France. Hence US has an absolute advantage in both Wine production and bread production thus mutually beneficial trade cannot happen. Hence option d is correct

Question 22

Since Quantity demanded is not changing means demand is price inelastic. When price comes down supplier will be willing to supply less quantity of wheat and hence country will import wheat to cater to shortage of supply. Hence country imports wheat and demand is perfectly inelastic is correct i.e option a