1) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country the labor and other processing costs per acre are the same regardless of whether grapevines or olive trees are cultivated).
Country A Country Z
Olive Oil yield 40 barrels 30 barrels
Grape yield 90 barrels 45 barrels
Suppose initially each country had erected high tariff barriers to keep out foreign wine and/or olive oil and was producing for its own needs only. Could consumers in both countries benefit if all trade barriers were dropped? If not, explain why not. If consumers could benefit, explain how and identity:
a) Which country has the greater opportunity cost of producing olive oil?
b) The country which would end up exporting wine and which would export olive oil after the elimination of trade barriers?
1) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country the labor and other processing costs per acre are the same regardless of whether grapevines or olive trees are cultivated).
Country A Country Z
Olive Oil yield 40 barrels 30 barrels
Grape yield 90 barrels 45 barrels
Suppose initially each country had erected high tariff barriers to keep out foreign wine and/or olive oil and was producing for its own needs only. Could consumers in both countries benefit if all trade barriers were dropped? If not, explain why not. If consumers could benefit, explain how and identity:
a) Which country has the greater opportunity cost of producing olive oil?
b) The country which would end up exporting wine and which would export olive oil after the elimination of trade barriers?
