5. The price of trade Suppose that Slovenia and Luxembourg both produce ale and wheat. Slovenia's opportunity cost of producing a bushel of wheat is 5 kegs of ale while Luxembourg's opportunity cost of producing a bushel of wheat is 11 kegs of ale. By comparing the opportunity cost of producing wheat in the two countries, you can tell that has a comparative advantage in the production of wheat and has a comparative advantage in the production of ale. Suppose that Slovenia and Luxembourg consider trading wheat and ale with each other. Slovenia can gain from specialization and trade as long as it receives more than of ale for each bushel of wheat it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than of wheat for each keg of ale it exports to Slovenia. Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of ale) would allow both Luxembourg and Slovenia to gain from trade? Check all that apply. 3 kegs of ale per bushel of wheat 15 kegs of ale per bushel of wheat 8 kegs of ale per bushel of wheat 10 kegs of ale per bushel of wheat

Brief Principles of Macroeconomics (MindTap Course List)
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Author:N. Gregory Mankiw
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Chapter3: Interdependence And The Gains Rrom Trade
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5. The price of trade
Suppose that Slovenia and Luxembourg both produce ale and wheat. Slovenia's opportunity
cost of producing a bushel of wheat is 5 kegs of ale while Luxembourg's opportunity cost of
producing a bushel of wheat is 11 kegs of ale.
By comparing the opportunity cost of producing wheat in the two countries, you can tell that
has a comparative advantage in the production of wheat and has a comparative advantage in
the production of ale.
Suppose that Slovenia and Luxembourg consider trading wheat and ale with each other.
Slovenia can gain from specialization and trade as long as it receives more than of ale for each
bushel of wheat it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as
it receives more than of wheat for each keg of ale it exports to Slovenia.
Based on your answer to the last question, which of the following prices of trade (that is, price
of wheat in terms of ale) would allow both Luxembourg and Slovenia to gain from trade? Check
all that apply.
3 kegs of ale per bushel of wheat
15 kegs of ale per bushel of wheat
8 kegs of ale per bushel of wheat
10 kegs of ale per bushel of wheat
Transcribed Image Text:5. The price of trade Suppose that Slovenia and Luxembourg both produce ale and wheat. Slovenia's opportunity cost of producing a bushel of wheat is 5 kegs of ale while Luxembourg's opportunity cost of producing a bushel of wheat is 11 kegs of ale. By comparing the opportunity cost of producing wheat in the two countries, you can tell that has a comparative advantage in the production of wheat and has a comparative advantage in the production of ale. Suppose that Slovenia and Luxembourg consider trading wheat and ale with each other. Slovenia can gain from specialization and trade as long as it receives more than of ale for each bushel of wheat it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than of wheat for each keg of ale it exports to Slovenia. Based on your answer to the last question, which of the following prices of trade (that is, price of wheat in terms of ale) would allow both Luxembourg and Slovenia to gain from trade? Check all that apply. 3 kegs of ale per bushel of wheat 15 kegs of ale per bushel of wheat 8 kegs of ale per bushel of wheat 10 kegs of ale per bushel of wheat
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