Question

Suppose that Italy and Sweden both produce beer and olives. Italy's opportunity cost of producing a crate of olives is 5 barrels of beer while Sweden's opportunity cost of producing a crate of olives is 10 barrels of beer.
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 beer.

Suppose that Italy and Sweden consider trading olives and beer with each other. Italy can gain from specialization and trade as long as it receives more than _________of beer 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 barrel of beer it exports to Italy.

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

a. 1 barrel of beer per crate of olives
b. 6 barrels of beer per crate of olives
c. 9 barrels of beer per crate of olives
d. 12 barrels of beer per crate of olives

Answer 1

B and C because blahblahblahblah