Suppose that Richland and Prosperity have the production possibilities shown below:

RICHLAND'S PRODUCTION POSSIBILITIES
(millions of units)
	A	B	C	D	E
Wheat	60	45	30	15	0
Wine	0	5	10	15	20
PROSPERITY'S PRODUCTION POSSIBILITIES
(millions of units)
	A	B	C	D	E
Wheat	40	30	20	10	0
Wine	0	15	30	45	60

Assume that cost and productivity remain constant.Round your answers below to 2 decimal places.

a. What is the opportunity cost of producing one bushel of wheat in Richland?

1 bushel of wheat =barrels of wine.

b. What is the opportunity cost of producing one barrel of wine in Richland?

1 barrel of wine =bushels of wheat.

c. What is the opportunity cost of producing one bushel of wheat in Prosperity?

1 bushel of wheat =barrels of wine.

d. What is the opportunity cost of producing one barrel of wine in Prosperity?

1 barrel of wine =bushels of wheat.

e. In what product does Richland have a comparative advantage?

Richland:

(Click to select)

Wheat

Wine

f. In what product does Prosperity have a comparative advantage?

Prosperity:

(Click to select)

Wheat

Wine

Suppose that both countries are presently producing combination C.

g. Fill in the blanks in the following table:

TOTAL OUTPUT IN MILLIONS OF UNITS
	Wheat	Wine
Richland
Prosperity
Total Both countries

Now suppose that each country specializes in the product in which it has a comparative advantage.

h. Show the results in the following table:

	Wheat	Wine
Richland
Prosperity
Total Both countries

i. What is the joint gain from trade?

Wheat andWine

Suppose that the two countries establish the terms of trade at 1 wine = 1.5 wheat, and Prosperity decides to export 18 wine to Richland.

j. In the following table show how the two countries will share the gains from trade.Round your answers below to 1 decimal place.

GAINS FOR EACH COUNTRY
	Wheat	Wine
Richland
Prosperity
Total Both countries