Let's solve the problem step by step. ### 1. Find Opportunity Cost for Each Country #### **Italia** The production possibilities are: - (18 guns, 0 butter) - (12 guns, 3 butter) - (6 guns, 6 butter) - (0 guns, 9 butter) Let’s find the opportunity cost for each good. ##### **Opportunity Cost of 1 Butter in Italia:** Moving from (18 guns, 0 butter) to (12 guns, 3 butter): - Lose 6 guns, gain 3 butter → 6 guns / 3 butter = **2 guns per butter** Let’s check this is consistent: - (12 guns, 3 butter) to (6 guns, 6 butter): Lose 6 guns, gain 3 butter → **2 guns per butter** - (6 guns, 6 butter) to (0 guns, 9 butter): Lose 6 guns, gain 3 butter → **2 guns per butter** **So, in Italia:** - **Opportunity cost of 1 butter = 2 guns** - **Opportunity cost of 1 gun = 0.5 butter** (1/2) #### **Nire** The production possibilities are: - (24 guns, 0 butter) - (18 guns, 1 butter) - (12 guns, 2 butter) - (6 guns, 3 butter) - (0 guns, 4 butter) ##### **Opportunity Cost of 1 Butter in Nire:** (24 guns, 0 butter) to (18 guns, 1 butter): Lose 6 guns, gain 1 butter → 6 guns / 1 butter = **6 guns per butter** Check across other intervals: - (18 guns, 1 butter) to (12 guns, 2 butter): Lose 6 guns, gain 1 butter → **6 guns per butter** - (12 guns, 2 butter) to (6 guns, 3 butter): Lose 6 guns, gain 1 butter → **6 guns per butter** - (6 guns, 3 butter) to (0 guns, 4 butter): Lose 6 guns, gain 1 butter → **6 guns per butter** **So, in Nire:** - **Opportunity cost of 1 butter = 6 guns** - **Opportunity cost of 1 gun = 1/6 butter** --- ### 2. Comparative Advantage - Comparative advantage: Lower opportunity cost for a good. **Butter:** - Italia: 1 butter costs 2 guns - Nire: 1 butter costs 6 guns - **Italia has the comparative advantage in butter.** **Guns:** - Italia: 1 gun costs 0.5 butter - Nire: 1 gun costs 1/6 butter ≈ 0.1667 butter - **Nire has the comparative advantage in guns.** **Answer:** > **Italia has a comparative advantage in producing butter, whereas Nire has a comparative advantage in producing guns.** --- ### 3. Is the Proposed Trade Mutually Agreeable? **Trade proposed:** 2 pounds of butter for 6 guns Let's check if **both countries** benefit. #### **For Italia:** - If Italia trades **2 butter**, how many guns is that worth domestically? - Opportunity cost: 2 butter × 2 guns/butter = **4 guns** - In the trade, Italia gives up 2 butter and receives 6 guns (**better** than making them domestically). - **Italia gains**: They get 6 guns for something that would have cost 2 butter × 2 guns = 4 guns domestically. #### **For Nire:** - If Nire trades **6 guns**, how much butter is that worth domestically? - Opportunity cost: 6 guns × 1/6 butter/gun = **1 butter** - In the trade, Nire gives up 6 guns and gets 2 butter (**better** than making them domestically). - **Nire gains**: To make 2 butter, they'd have to give up 12 guns, but in this trade, they only give up 6 guns. **Therefore:** - **Both countries gain** from the trade. --- ### 4. True or False: This trade would be mutually agreeable to both countries. **Answer: True** #### **Reasoning:** - **Italia**: Gets 6 guns for 2 butter (instead of 4 guns for 2 butter domestically). - **Nire**: Gets 2 butter for 6 guns (instead of 1 butter for 6 guns domestically). **Both countries get more than they could have produced themselves, so the trade is mutually beneficial.** #### **Why NOT False?** - The trade is not unbalanced or exploitative. Both countries are better off compared to their own opportunity costs. Thus, it's not false. --- ## **Final Answers** 1. **Italia has a comparative advantage in producing butter, whereas Nire has a comparative advantage in producing guns.** 2. **True:** This trade would be mutually agreeable to both countries. - **Reason:** Both countries receive more from the trade than they would by producing the goods domestically, due to their comparative advantages. - **False is incorrect** because in this trade, both countries gain compared to self-production.