The following table shows the labour input requirements to produce a bushel of wheat and a litre of wine in two countries, Northland and Southland, on the assumption of constant cost production technology - meaning that the production possibility curves in each are straight lines.
(a) Which country has an absolute advantage in the production of both wheat and wine?
(b) What is the opportunity cost of wheat in each economy? Of wine?
(c) What is the pattern of comparative advantage here?
(d) Suppose the country with a comparative advantage in wine reduces wheat production by one bushel and reallocates the labour involved to wine production. How much additional wine does it produce?
(e) Which country, if either, gains from this change in production and trade, and what is the gain?
(f) If the country with the comparative advantage in wheat reduced wine production enough to increase wheat production by one bushel, how much wine could it get by selling the additional bushel of wheat to the other country at that economy's opportunity cost?