Question

Suppose that France and Austria both produce rye and stained glass. France's opportunity cost of producing a pane of stained glass is 5 bushels of rye while Austria's opportunity cost of producing a pane of stained glass is 10 bushels of rye. By comparing the opportunity cost of producing stained glass in the two countries, you can tell that has a comparative advantage in the production of stained glass and has a comparative advantage in the production of rye. Suppose that France and Austria consider trading stained glass and rye with each other. France can gain from specialization and trade as long as it receives more than of rye for each pane of stained glass it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than of stained glass for each bushel of rye it exports to France. Based on your answer to the last question, which of the following prices of trade (that is, price of stained glass in terms of rye) would allow both Austria and France to gain from trade? Check all that apply. 9 bushels of rye per pane of stained glass 8 bushels of rye per pane of stained glass 1 bushel of rye per pane of stained glass 3 bushels of rye per pane of stained glass

Answer 1

France has a comparative advantage in producing stained glass and Austria has a comparative advantage in proucing Rye.

The correct answers are

9 bushels of rye per pane of stained glass

8 bushels of rye per pane of stained glass

For trade the opportunity cosr of a pane of stained glass must be between 5 and 10 bushels of Rye.