Suppose that the two nations in Problem 32-4 decide to specialize in producing the good for which they have a comparative advantage and to engage in trade. Will residents of both nations agree to trade wine for digital TVs at a rate of exchange of 4 bottles of wine for 1 digital TV? Why or why not?
Problem 32-4
Residents of the nation of Border Kingdom can forgo production of digital televisions and utilize all available resources to produce 300 bottles of high-quality wine per hour. Alternatively, they can forgo producing wine and instead produce 60 digital TVs per hour. In the neighboring country of Coastal Realm, residents can forgo production of digital TVs and use all resources to produce 150 bottles of high-quality wine per hour, or they can forgo wine production and produce 50 digital TVs per hour. In both nations, the opportunity costs of producing the two goods are constant.