Latvia and Estonia are two countries. Assume that currently there is no trade between them. Each country has 100 units of labor. Latvia produces fish, at a cost of 1 unit of labor per fish, and grain, at a cost of 2 units of labor per bushel. Estonia produces fish at a cost of 2 units of labor per fish, and grain at a cost of 3 units of labor per bushel. Both countries consume both fish and grain. a. True or False, the countries can both benefit if they can trade with each other

True

Explanation:

Opportunity costs for Latvia:

Opportunity cost of producing fish = 1/2 = 0.5 bushels of grain

Opportunity cost of producing grain = 2/1 = 2 fish

Opportunity costs for Estonia:

Opportunity cost of producing fish = 2/3 = 0.67 bushels of grain

Opportunity cost of producing grain = 3/2 = 1.5 fish

Latvia has a lower opportunity cost in the production of fish while Estonia has a lower opportunity cost in the production of grain. Competitive advantage refers to having a lower opportunity cost in the production of a good.

Both countries can therefore gain from trade if they traded in goods they have a competitive advantage in.

Latvia would gain if they traded fish for grain and Estonia would gain if they did the reverse.

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.

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