Question

Suppose that Italy and Germany both produce beer and stained glass. Italy's opportunity cost of producing a pane of stained glass is 5 barrels of beer while Germany's opportunity cost of producing a pane of stained glass is 11 barrels of beer. By comparing the opportunity cost of producing stained glass in the two countries, you can tell that the production of stained glass and has a comparative advantage in the production of beer. has a comparative advantage in Suppose that Italy and Germany consider trading stained glass and beer with each other. Italy can gain from specialization and trade as long as it receives more than of beer for each pane of stained glass it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than of stained glass for each barrel of beer it exports to Italy. Based on your answer to the last question, which of the following prices of trade (that is, price of stained glass in terms of beer) would allow both Germany and Italy to gain from trade?a) 1 barrel of beer per pane of stained glass b) 10 barrels of beer per pane of stained glass c) 2 barrels of beer per pane of stained glass d) 17 barrels of beer per pane of stained glass

Answer 1

Answer: The answer is c 2 barrel of beer per pane of stained glass

Explanation:

Since the theory of opportunity cost states that,to have a comparative advantage in a commodity, the opportunity cost of that country must be low.

Therefore the price of stained glass in terms of beer that would allow both Germany and Italy to gain from trade is

Opportunity cost = 11 /5

=2.2

Therefore the correct option is 2 barrel of beer per pane of stained glass

Answer 2

Answer:

Explanation: See attachment below