Business, 12.03.2020 20:23, meandmycousinmagic

Suppose that Spain and Sweden both produce oil and olives. Spain's opportunity cost of producing a crate of olives is 5 barrels of oil while Sweden'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 Spain and Sweden consider trading olives and oil with each other. Spain can gain from specialization and trade as long as it receives more than of oil for each crate of olives it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more thanof olives for each barrel of oil it exports to Spain.

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

1) 7 barrels of oil per crate of olives

2) 11 barrels of oil per crate of olives

3) 6 barrels of oil per crate of olives

4) 4 barrels of oil per crate of olives

Answers: 3

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Suppose that Spain and Sweden both produce oil and olives. Spain's opportunity cost of producing a c...