Suppose that the cost of producing 1 unit of wine in Happy Island is 2 units of rice and in Joy Island,1 unit of wine costs 4 units of rice.What does this mean for the two countries?

Question

Quizplus · Accepted Answer

According to the given information, the opportunity cost of producing one unit of wine in Happy Island is 2 units of rice, while in Joy Island, it is 4 units of rice. This means that Happy Island has a lower opportunity cost of producing wine compared to Joy Island. Therefore, Happy Island should specialize in producing wine and export it to Joy Island. In exchange, Happy Island can import rice from Joy Island, as Joy Island has a lower opportunity cost of producing rice. This will result in both countries benefiting from trade and achieving higher efficiency in their production.

Suppose That the Cost of Producing 1 Unit of Wine