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Question 1: Answer the following questions Opportunity Cost and Comparative Advantage Australia can produce 50 barrels of ethanol or 30 tonnes of wheat a day, while the United States can produce 120 barrels of ethanol or 20 tonnes of wheat a day.(a)Which country has a comparative advantage in producing ethanol and which country has a comparative advantage in producing wheat? Explain why.(b)Initially, both Australia and the US spent half a day producing ethanol and half a day producing wheat. However, they now decide to specialise in producing the product that they have a comparative advantage and trade their products in the world market. What are the total gains from trade? Explain.(e)The quantity of potato chips that people want to buy increases by 20 million bags per week at each price. Now suppose, at the same time, a new breed of potato increases production of potato crops and the quantity of potato chips produced increases by 30 million bags a week at each price. Explain how the market equilibrium price and quantity of chips change. What are the new market equilibrium price and quantity? Show the changes on a graph.
