1. Consider the following scenario: Australia Company ABC can produce 4 tons of steel per labour hour or 6 tons of sugar. US Company XYZ can produce 2 and 1 respectively. Assume both countries have 10 hours of labour available. ABC has an absolute advantage in steel, so should specialise in the production of steel. As David Ricardo stated both countries will benefit from trade. 2. If we observe an increase in both price and quantity, the demand curve must be upward sloping. 3. If the marginal product is falling average product must be falling