Question

Suppose that Greece and Denmark both produce beer and shoes. Greece's opportunity cost of producing a pair of shoes is 4 barrels of beer while Denmark's opportunity cost of producing a pair of shoes is 10 barrels of beer. By comparing the opportunity cost of producing shoes in the two countries, you can tell that production of shoes and has a comparative advantage in the has a comparative advantage in the production of beer. Suppose that Greece and Denmark consider trading shoes and beer with each other. Greece can gain from specialization and trade as long as it receives more than receives more than of beer for each pair of shoes it exports to Denmark. Similarly, Denmark can gain from trade as long as it of shoes for each barrel of beer it exports to Greece. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of beer) would allow both Denmark and Greece to gain from trade? Check all that apply. 16 barrels of beer per pair of shoes 7 barrels of beer per pair of shoes 9 barrels of beer per pair of shoes 2 barrels of beer per pair of shoes

Answer 1