1)

When Country - A has an absolute in producing all products compared to Country - B but Country - B has comparative advantage in several products then there is opportunities of gains of trade for both coutry.

When there is a comparative advantage in several products then that Country i.e B country has lower opportunity cost of production compared to Country - A. As Country - B has lower opportunity cost in several products then Country - B can produce and export those goods which has comparative advantage. Country - A can import those goods from Country - B in which it has higher opportunity cost.

The direction of trade will not be by determined by relative price rather than it will be determined by relative productivity and relative wage. If Country - A has higher relative wage than the relative productivity then that Country will have relative disadvantage in that good.

To produce and export a good the relative productivity must have to greater than the relative wage for that country. So, direction of trade will be based on relative productivity for various products and relative wages. The country - B will have higher relative productivity in which it has comparative advantage.

Country - A will export good - i, if (a_??????Li /b_??????Li) < ( W_????b /W_??????a) , it means relative use of labour in Country - A is comparatively less than the other country - B. So direction of trade will be based on relative productivity and relative wage.

2)

Ans) Trade is done on the basis of comparative advantage. Comparative advantage is when one party can produce goods with lower opportunity cost. It allows countries to specialise.

When countries specialise in goods, in which they are best at i.e produces the good for which it has lower opportunity cost, production increases. Similarly, the country with which it trades, also produces the good in which it is best at. This way, the total production of goods increases and they are able to exchange and consume outside their PPC, which would not have been possible if they were to produce both the goods by themselves. Because then, the resources would have split between the goods and production would have decreased.

Further, when they produce the goods at large scale, costs decreases due to economies of scale (as they are producing for themselves and for other country). Hence, both the countries enjoy more variety of goods at lower cost.

So, countries trade to increase their consumption beyond their PPC.

3)

Relationship between price elasticty and total revenue

Total Revenue = P*Q

1. when the demand is inelastic (when the demand is more or less insensitive to price change), then the price and total revenue move in the same direction i.e., an increase in price increases total revenue and marginal revenue is positive.

2. when the demand is elastic (when the demand is more or less sensitive to price change), then the price and total revenue move in the opposite direction i.e., an increase in price decreases total revenue.

3. when the demand is unitary elastic, then total revenue remains unchanged and marginal reveune is zero.

In the above question, when the price of breakfast cereal, increases from $4 to $4.25 per box had no impact on total raevenue implies that the demand for breakfast cereal is unitary elastic over the price range $4 to $4.25 per box and when the price of breakfast cereal, increases from $4.25 to $4.5 per box reduces total revenue by 2% implies that the demand for breakfast cereal is elastic over the range from $4.25 to $4.5 per box.

Hence option c is correct.

please see the attached file.