Question

Suppose that Greece and Sweden both produce fish and shoes. Greece's opportunity cost of producing a pair of shoes is 5 pounds of fish while Sweden's opportunity cost of producing a pair of shoes is 10 pounds of fish. By comparing the opportunity cost of producing shoes in the two countries, you can tell thatY production of shoes and has a comparative advantage in the production of fish. has a comparative advantage in the_____ Suppose that Greece and Sweden consider trading shoes and fish with each other. Greece can gain from specialization and trade as long as it receives more than than of fish for each pair of shoes it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more ▼ of shoes for each pound of fish it exports to Greece. your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of fish) would allow both Sweden and gain from trade? . a) 8 pounds of fish per pair of shoes b) 1 pound of fish per pair of shoes c) 15 pounds of fish per pair of shoes d) 3 pounds of fish per pair of shoes

Answer 1

Answer:

a) 8 pounds of fish per pair of shoes

Explanation:

Suppose that Greece and Sweden both produce fish and shoes.

Greece's opportunity cost of producing a pair of shoes is 5 pounds of fish while Sweden's opportunity cost of producing a pair of shoes is 10 pounds of fish.

1. By comparing the opportunity cost of producing shoes in the two countries, you can tell that Greece production of shoes and has a comparative advantage in the production of fish. Sweden has a comparative advantage in the production of fish.

2. Suppose that Greece and Sweden consider trading shoes and fish with each other. Greece can gain from specialization and trade as long as it receives more than than 5 pounds of fish for each pair of shoes it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more 1/10 of shoes for each pound of fish it exports to Greece.

3. Which of the following prices of trade (that is, price of shoes in terms of fish) would allow both Sweden and gain from trade? .

a) 8 pounds of fish per pair of shoes b) 1 pound of fish per pair of shoes c) 15 pounds of fish per pair of shoes d) 3 pounds of fish per pair of shoes

The answer is a) 8 pounds of fish per pair of shoes because at this price Greece is making more than 5 pounds which is its cost, and Sweden is also benefiting because it is purchasing shoes at a price lesser than it would have produced it, in the bid to be self-reliant.