Question

 Suppose that Greece and Switzerland both produce oil and olives. Greece's opportunity cost of producing a crate of olives is 5 barrels of oil, while

 Switzerland's opportunity cost of producing a crate of olives is 10 barrels of oil.

 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 oil.

 Suppose that Greece and Switzerland consider trading olives and oil with each other. Greece can gain from specialization and trade as long as it receives more than _______  of oil for each crate of olives it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it  receives more than _______  of olives for each barrel of oil it exports to Greece.

 Based on your answers to the previous question, which of the following terms of trade (that is, price of olives in terms of oil) would allow both

 Switzerland and Greece to gain from trade? Check all that apply.

•  2 barrels of oil per crate of olives

•  12 barrels of oil per crate of olives

•  9 barrels of oil per crate of olives

•  1 barrel of oil per crate of olives

Answer 1

a) As Greece can produce by giving up less oil. They have a comparative advantage in the production of Oilves and Switzerland will have a comparative advantage in the production of oil.

b) Greece will gain if they are receiving more than 5 barrels of oil for a crate of Olive.

c) Switzerland will gain if they are receiving more than 1/10 crate of olive for a barrel of oil.

d) "C"

9 barrels of oil per crate of olives.