Suppose that Ireland and Luxembourg both produce boots and broccoli. Ireland's opportunity cost of producing a bushel of broccoli is 4 pairs of boots while Luxembourg's opportunity cost of producing a bushel of broccoli is 12 pairs of boots. By comparing the opportunity cost of producing broccoli in the two countries, you can tell that LUXEMBOURG or IRELAND has a comparative advantage in the production of broccoli and LUXEMBOURG or IRELAND has a comparative advantage in the production of boots. Suppose that Ireland and Luxembourg consider trading broccoli and boots with each other. Ireland can gain from specialization and trade as long as it receives more than 1 PAIR or 1/12 PAIR or 1/4 PAIR or 4 PAIRS or 12 PAIRS of boots for each bushel of broccoli it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than 1 BUSHEL or 1/12 BUSHEL or 1/4 BUSHEL or 4 BUSHELS or 12 BUSHELS. Based on your answer to the last question, which of the following prices of trade (that is, price of broccoli in terms of boots) would allow both Luxembourg and Ireland to gain from trade? Check all that apply. 5 pairs of boots per bushel of broccoli 2 pairs of boots per bushel of broccoli 16 pairs of boots per bushel of broccoli 1 pair of boots per bushel of broccoli

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The price of trade

Suppose that Ireland and Luxembourg both produce boots and broccoli. Ireland's opportunity cost of producing a bushel of broccoli is 4 pairs of boots while Luxembourg's opportunity cost of producing a bushel of broccoli is 12 pairs of boots.

By comparing the opportunity cost of producing broccoli in the two countries, you can tell that LUXEMBOURG or IRELAND has a comparative advantage in the production of broccoli and LUXEMBOURG or IRELAND has a comparative advantage in the production of boots.

Suppose that Ireland and Luxembourg consider trading broccoli and boots with each other. Ireland can gain from specialization and trade as long as it receives more than 1 PAIR or 1/12 PAIR or 1/4 PAIR or 4 PAIRS or 12 PAIRS of boots for each bushel of broccoli it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than 1 BUSHEL or 1/12 BUSHEL or 1/4 BUSHEL or 4 BUSHELS or 12 BUSHELS.

Based on your answer to the last question, which of the following prices of trade (that is, price of broccoli in terms of boots) would allow both Luxembourg and Ireland to gain from trade? Check all that apply.

5 pairs of boots per bushel of broccoli

2 pairs of boots per bushel of broccoli

16 pairs of boots per bushel of broccoli

1 pair of boots per bushel of broccoli

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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The opportunity cost helps to determine the comparative advantage for an economy; thus with a comparison of opportunity cost of producing broccoli in the two nations the comparative advantage can be determined

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