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Question: the first two columns give the maximum daily amounts of...

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The first two columns give the maximum daily amounts of beer and whiskey that Southern Ireland and Northern Ireland can produce when they completely specialize in one or another product. The last two columns give each country's consumption without trade.

Maximum beer production Maximum whiskey production Beer consumption without trade Whiskey consumption without trade
Northern Ireland 500 kegs 1500 bottles 300 kegs 600 bottles
Southern Ireland 1200 kegs 800 bottles 600 kegs 400 bottles

Suppose that Northern Ireland and Southern Ireland each have 1,000 hours of labor per day. Southern workers are paid €1 per day and Northern workers are paid £1 per day. What is the approximate exchange rate associated with an international price of one keg of beer = 1 bottle of whiskey?

Answer options:

  • €0.80 = £1

  • none of the options

  • €1 = £1

  • €1.14 = £1

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