5. The price of trade

Suppose that Slovenia and Luxembourg both produce beets and liquor. Slovenia's opportunity cost of producing a case of liquor is 5 bushels of beets while Luxembourg's opportunity cost of producing a case of liquor is 10 bushels of beets.

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

Suppose that Slovenia and Luxembourg consider trading liquor and beets with each other. Slovenia can gain from specialization and trade as long as it receives more than of beets for each case of liquor it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than of liquor for each bushel of beets it exports to Slovenia.

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

7 bushels of beets per case of liquor

19 bushels of beets per case of liquor

1 bushel of beets per case of liquor

6 bushels of beets per case of liquor