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Suppose that Ireland and Luxembourg both produce sunflowers and liquor

Suppose that Ireland and Luxembourg both produce sunflowers and liquor. Ireland’s opportunity cost of producing a case of liquor is 5 bushels of sunflowers while Luxembourg’s opportunity cost of producing a case of liquor is 11 bushels of sunflowers.

By comparing the opportunity cost of producing liquor in the two countries, you can tell that Ireland   has a comparative advantage in the production of liquor and Luxembourg   has a comparative advantage in the production of sunflowers.

Explanation:
Ireland has a lower opportunity cost for the production of liquor than Luxembourg does; therefore, Ireland has a comparative advantage in the production of liquor. That is, Ireland has to give up only 5 bushels of sunflowers to produce a case of liquor while Luxembourg must give up 11 bushels of sunflowers to produce a case of liquor. Another way to think of it is that it is cheaper for Ireland to produce liquor than it is for Luxembourg. Therefore, it is better for Ireland to specialize in the production of liquor.
You can determine the opportunity cost of sunflowers in terms of liquor from the opportunity cost of liquor in terms of sunflowers. For example, Ireland's opportunity cost of producing a case of liquor is 5 bushels of sunflowers. Therefore, Ireland can produce 5 bushels of sunflowers if it forgoes the production of 1 case of liquor. This means that Ireland's opportunity cost of producing a bushel of sunflowers is 1/5 of a case of liquor. Similarly, Luxembourg's opportunity cost of producing a case of liquor is 11 bushels of sunflowers, so Luxembourg's opportunity cost of producing a bushel of sunflowers is 1/11 of a case of liquor. Since Luxembourg has a lower opportunity cost for the production of sunflowers than Ireland does, it has a comparative advantage in the production of sunflowers.

Suppose that Ireland and Luxembourg consider trading liquor and sunflowers with each other. Ireland can gain from specialization and trade as long as it receives more than 5 bushels   of sunflowers for each case of liquor it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than 1/11 case   of liquor for each bushel of sunflowers it exports to Ireland.

Explanation:
Ireland's opportunity cost of producing a case of liquor is 5 bushels of sunflowers. Therefore, if it can import more than 5 bushels of sunflowers for each case of liquor it exports, it will be better off importing sunflowers than producing it domestically.
Luxembourg's opportunity cost of producing a case of liquor is 11 bushels of sunflowers. Another way of thinking about this is that for each bushel of sunflowers it produces, it must give up 1/11 of a case of liquor. Therefore, if it can import more than 1/11 of a case of liquor for each bushel of sunflowers it exports, it will be better off importing liquor than producing liquor domestically.

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

a) 1 bushel of sunflowers per case of liquor

b) 2 bushels of sunflowers per case of liquor

c) 7 bushels of sunflowers per case of liquor

d) 15 bushels of sunflowers per case of liquor

Explanation:
Recall that Ireland will gain from trade if it gets more than 5 bushels of sunflowers for each case of liquor it exports. Similarly, Luxembourg will trade sunflowers only if it gets more than 1/11 case of liquor for each bushel of sunflowers it exports. Another way of saying this is that Luxembourg is willing to trade up to 11 bushels of sunflowers for each case of liquor it imports.
Therefore, any price ratio that involves liquor selling for between 5 and 11 bushels of sunflowers per case of liquor will benefit both countries. Any price below 5 bushels of sunflowers per case of liquor would benefit Luxembourg but not Ireland; similarly, any price above 11 bushels of sunflowers per case of liquor would benefit Ireland but not Luxembourg.

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