Question

Suppose that France and Denmark both produce fish and stained glass. France's opportunity cost of producing a pane of stained glass is 3 pounds of fish while Denmark's opportunity cost of producing a pane of stained glass is 11 pounds of fish.
By comparing the opportunity cost of producing stained glass in the two countries, you can tell that______( france or denmark) has a comparative advantage in the production of stained glass and____(france or denmark) has a comparative advantage in the production of fish.

Suppose that France and Denmark consider trading stained glass and fish with each other. France can gain from specialization and trade as long as it receives more than ______ of fish for each pane of stained glass it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than______ of stained glass for each pound of fish it exports to France.

Based on your answer to the last question, which of the following prices of trade (that is, price of stained glass in terms of fish) would allow both Denmark and France to gain from trade? Check all that apply.

4 pounds of fish per pane of stained glass

2 pounds of fish per pane of stained glass

1 pound of fish per pane of stained glass

7 pounds of fish per pane of stained glass

Answer 1

Answer:

France has a comparative advantage in the production of stained glass.

Denmark has a comparative advantage in production of fish.

France will gain from trade as long as it gets more than 3 pounds of fish for each pane of stained glass.

Denmark can gain from trade if it gets more than 0.09 pane of stained glass for each pound of fish it exports.

4 pounds of fish per pane of stained glass.

7 pounds of fish per pane of stained glass.

Explanation:

France and Denmark both produce fish and stained glass.

France's opportunity cost of producing a pane of stained glass

= 3 pounds of fish

Denmark's opportunity cost of producing a pane of stained glass

= 11 pounds of fish

France's opportunity cost of producing a pound of fish

= $\frac{1}{3}$

= 0.33 pane of stained glass

Denmark's opportunity cost of producing a pound of fish

= $\frac{1}{11}$

= 0.09 pane of stained glass

France has a lower opportunity cost of producing stained glass so we can say it has a comparative advantage in the production of stained glass. While Denmark has a comparative advantage in the production of fish.

If both countries start to trade with each other, France will gain from trade as long as it gets more than 3 pounds of fish for each pane of stained glass.

While Denmark can gain from trade if it gets more than 0.09 pane of stained glass for each pound of fish it exports.

Both the countries will gain from trade if the trade price lies between their opportunity cost. both countries will gain from trade if the price is 4 pounds of fish per pane of stained glass or 7 pounds of fish per pane of stained glass.