1. Suppose the two countries, Norway and Sweden. Norway has a long coast that borders on the north Atlantic and is more productive in fishing. Sweden has a greater endowment of capital and is more productive in automobile. Assume the two countries trade each other, with Norway exporting fish to Sweden and Sweden exporting Volvos (automobiles) to Norway. Explain the gains from trade between the two countries using the standard trade model. Assume that the tastes for the goods are the same in both countries, but the production possibilities frontiers differ.

2. Evaluate the relative importance of economies of scale and comparative advantage in causing the following:

• Most of the world's aluminum is smelted in Norway or Canada.
• Half of the world's largest jet aircraft are assembled in Seattle.
• Most semiconductors are manufactured in either the U.S. or Japan.
• Most Scotch whisky comes from Scotland.
• Much of the world's best wine comes from France.