When David Ricardo described trade between Portugal and England in 1821, he gave Portugal the absolute advantage in both wine and cloth, based on its favorable climate. England would find it very difficult to grow grapes for wine and not so difficult to produce cloth, so it had a comparative advantage in cloth. This raises the question: What if a new technology could be discovered that would allow England to produce world-class grapes and wine? Would it be possible for it to create a new comparative advantage in wine?

Something like this occurred in the Niagara Falls region of Canada, which sells a product called "icewine." First developed in Germany in 1794 (when Ricardo was 21 years old), icewine is produced by allowing grapes to freeze on the vine. Freezing concentrates the sugars and flavors of the grapes, which are picked by hand and then processed into a sweet dessert wine. In 1983 several wineries in the Niagara Falls region of Canada experimented with producing this wine, and it has since taken off to become a local specialty. The cold climate of Niagara Falls offers an advantage in producing icewine, because the temperature should be 10C to 13C before picking. The yield from this process is very lowan entire vine might make only one bottlewhich is why it is sold in half-bottles. But demand is high because of the unique flavor of this wine, and the half-bottles often sell for $50 or more.

Icewine is now also being produced in the Okanagan Valley region of British Columbia, Canada, which similarly enjoys a climate warm enough in the summer to grow grapes and cold enough in the winter to freeze them.

1. Does Canada gain from an export of the icewine? Briefly explain why or why not.

2. What are reasons for countries to trade?

3. Will the country that is best at producing a good always export it?