ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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5. The price of trade
Suppose that Ireland and Liechtenstein both produce beets and wheat. Ireland's opportunity cost of producing a bushel of wheat is 5 bushels of beets
while Liechtenstein's opportunity cost of producing a bushel of wheat is 11 bushels of beets.
By comparing the opportunity cost of producing wheat in the two countries, you can tell that Ireland
production of wheat and Liechtenstein has a comparative advantage in the production of beets.
Suppose that Ireland and Liechtenstein consider trading wheat and beets with each other. Ireland can gain from specialization and trade as long as it
receives more than
of beets for each bushel of wheat it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as
of wheat for each bushel of beets it exports to Ireland.
long as it receives more than
Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of beets) would allow both
Liechtenstein and Ireland to gain from trade? Check all that apply.
1 bushel of beets per bushel of wheat
10 bushels of beets per bushel of wheat
has a comparative advantage in the
8 bushels of beets per bushel of wheat
3 bushels of beets per bushel of wheat
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Transcribed Image Text:5. The price of trade Suppose that Ireland and Liechtenstein both produce beets and wheat. Ireland's opportunity cost of producing a bushel of wheat is 5 bushels of beets while Liechtenstein's opportunity cost of producing a bushel of wheat is 11 bushels of beets. By comparing the opportunity cost of producing wheat in the two countries, you can tell that Ireland production of wheat and Liechtenstein has a comparative advantage in the production of beets. Suppose that Ireland and Liechtenstein consider trading wheat and beets with each other. Ireland can gain from specialization and trade as long as it receives more than of beets for each bushel of wheat it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as of wheat for each bushel of beets it exports to Ireland. long as it receives more than Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of beets) would allow both Liechtenstein and Ireland to gain from trade? Check all that apply. 1 bushel of beets per bushel of wheat 10 bushels of beets per bushel of wheat has a comparative advantage in the 8 bushels of beets per bushel of wheat 3 bushels of beets per bushel of wheat
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