Question

Suppose that Italy and Switzerland both produce fish and stained glass. Italy's opportunity cost of producing a pane of stained glass is 4 pounds of fish while Switzerland's opportunity cost of producing a pane of stained glass is 10 pounds of fish.
By comparing the opportunity cost of producing stained glass in the two countries, you can tell that production of stained glass and has a comparative advantage in the has a comparative advantage in the production of fish. Suppose that Italy and Sweden consider trading stained glass and fish with each other. Italy can gain from specialization and trade as long as it receives more than receives more than of fish for each pane of stained glass it exports to Sweden. Similarly, Sweden can gain from trade as long as it of stained glass for each pound of fish 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 fish) would allow both Sweden and Italy to gain from trade?
a. 7 pounds of fish per pane of stained glass
b. 4 pounds of fish per pane of stained glass
c. 11 pounds of fish per pane of stained glass
d. 6 pounds of fish per pane of stained glass

Answer 1

Answer:

Italy has comparative advantage in production of stained glass

Sweden has comparative advantage in pounds of fish.

Italy can gain from trade if it receives more than 4 pounds of fish for stained glass.

Sweden can gain from the trade if it receives more than 1/10 stained glass for every pound of fish.

d. 6 pounds of fish per pane of stained glass.

Explanation:

Italy and Sweden both countries can produce stained glass and pounds of fish. Italy can produce 4 pounds of fish per pane of stained glass while Sweden can produce 10 pounds of fish per pane of stained glass. This means Italy has comparative advantage in production of pane of stained glass while Sweden has comparative advantage in pounds of fish.