ECON 340/0101 Spring 2007 Problem set 1 Instructions: Answer all questions and drop the Problem Set in my mailbox in TYD 3105 by Thursday February 15, 2007 before 4pm. If you have questions come to office hours after class on Tuesday. PROBLEM 1 Figure 1. Canadian Trade Possibilities a) Consider Figure 1 In the absence of trade, Canada would produce and consume: b) Canada has a comparative advantage in: c) With trade, Canada consumes: d) With specialization, Canada produces: e) According to the figure, exports for Canada total: f) According to the figure , imports for Canada total:PROBLEM 2 Figure 2 Production Possibilities Schedule in Russia a) The relative cost of steel in terms of aluminum in Russia is: b) If the opportunity cost of steel in Mozambique is 1 ton of aluminum then trade would occur if the equilibrium terms of trade were: c) Assume that the equilibrium terms of trade were the same as the opportunity cost in Russia. Who would gain from trade? Why? d) If the relative cost of steel were to rise, then the production possibilities schedule would: e) What would technology progress in the production of both goods do?PROBLEM 3 Table 1. Terms of Trade Export Price Index Import Price IndexCountry 1990 2004 1990 2004Mexico 100 220 100 200 Sweden 100 160 100 150 Spain 100 155 100 155 France 100 170 100 230 Denmark 100 120 100 125 a) Calculate the terms of trade for each country (for both years) assuming that total imports equal total exports. b) Which countries' terms of trade improved between 1990 and 2004? c) Which countries' terms of trade worsened between 1990 and