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Suppose that Ireland and Liechtenstein both produce boots and liquor. Ireland's opportunity cost of producing a case of liquor is 4 pairs of boots while
Suppose that Ireland and Liechtenstein both produce boots and liquor. Ireland's opportunity cost of producing a case of liquor is 4 pairs of boots while Liechtenstein's opportunity cost of producing a case of liquor is 12 pairs of boots. 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 boots. Suppose that Ireland and Liechtenstein consider trading liquor and boots with each other. Ireland can gain from specialization and trade as long as it receives more than of boots for each case of liquor it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as long as it receives more than of liquor for each pair of boots it exports to Ireland. Based on your answer to the last question, which of the following prices of trade (that is, price of liquor in terms of boots) would allow both Liechtenstein and Ireland to gain from trade? Check all that apply. 2 pairs of boots per case of liquor
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