Homework Sourse32 eSecure httpscoureopliacomjafisenvetquizq quz probGuid ON
32- eSecure https://coure.oplia.comjafisenvet/quiz?q quz probGuid ONAPCCABC101000000416bb004000 00048ckam 1529434541491 04446803016364EFC63CEACF00C0 aplia ECO 220 May 14 2013 Ricardian Model Graded Assigrment Back to Aseignment Due Monday 0702.13 at U245 AM 4ttempt:: Keep the Highest:9 Suppoa: that Germany and Spain both produ? nc and wine. Germany\'s opportunit “?cf poduorg J bottic of wine is S pounds of rye, whle Span\'s opporturity cost of produdng ? bcttle ot wine is 5 pounds cr ne. by comparing the opportunity costs ?f FroducinJ wine in the two countries, yoU cen determine that has a compaarive dvantage in the production of wino ard product on or rye. as a ccmparativa aartage inthe Suppoa: that Spain and Germany consider tradin?wina and ryc wth each other. Spain and trace as long as it receives mcre th Smilarv, Germany ca gain from trade as lang as it rece ves mee than ry t cxports to Spain. n gin hcm spocialization or ryetor each bottle or nine r: export to Germany. ofwine for eath pound of Based on your arswar tc tha lastquestion, which of the following terms or trade (naaring the prieof wine in tam at ye) mculd alow boch Germany and Spain to gain trom trade? Check al thatapply. ?-7 pounds cr re per bottle or mine pounds of re per bottle ofwine pounds f rye per bottk owine ? 1 pound at rye per botte of wine octinue wshout saving ?1ype here to search 
Solution
(a) Spain has comparative advantage in wine (Since Spain can produce wine at a lower opportunity cost than Germany can: 5 < 8) and Germany has comparative advantage in rye.
(b) Trade is beneficial as long as terms of trade lies in between the opportunity cost in both countries. So,
Spain will gain if it gains more than 5 pounds of rye per bottle of wine. Germany can gain if if gets more than 0.125 bottles of wine (= 1/8).
(c) Trade is beneficial when 5 pounds of rye < terms of trade per bottle of wine < 8 pounds of rye. Therefore, acceptable terms of trade is:
- 7 pounds of rye per bottle of wine
