Question

Suppose that Greece and Sweden both produce rye and olives. Greece's opportunity cost of producing a crate of olives is 4 bushels of rye while Sweden's opportunity cost of producing a crate of olives is 10 bushels of rye.
By comparing the opportunity cost of producing olives in the two countries, you can tell that ____ has a comparative advantage in the production of olives and__ has a comparative advantage in the production of rye.

Suppose that Greece and Sweden consider trading olives and rye with each other. Greece can gain from specialization and trade as long as it receives more than ____ of rye for each crate of olives it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than _____ of olives for each bushel of rye it exports to Greece.

Based on your answer to the last question, which of the following prices of trade (that is, price of olives in terms of rye) would allow both Sweden and Greece to gain from trade? Check all that apply.

2 bushels of rye per crate of olives

8 bushels of rye per crate of olives

18 bushels of rye per crate of olives

6 bushels of rye per crate of olives

Answer 1

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