5. The price of trade Suppose that Croatia and Wales both produce ale and shoes. Croatia's opportunity cost of producing a pair of shoes is 4 kegs of ale while Wales's opportunity cost of producing a pair of shoes is 12 kegs of ale. 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 production of ale. Suppose that Croatia and Wales consider trading shoes and ale with each other. Croatia can gain from specialization and trade as long as it receives more than of ale for each pair of shoes it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of shoes for each keg of ale it exports to Croatia. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of ale) would allow both Wales and Croatia to gain from trade? Check all that apply. 3 kegs of ale per pair of shoes has a comparative advantage in the 8 kegs of ale per pair of shoes 18 kegs of ale per pair of shoes 5 kegs of ale per pair of shoes

5. The price of trade Suppose that Croatia and Wales both produce ale and shoes. Croatia's opportunity cost of producing a pair of shoes is 4 kegs of ale while Wales's opportunity cost of producing a pair of shoes is 12 kegs of ale. 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 production of ale. Suppose that Croatia and Wales consider trading shoes and ale with each other. Croatia can gain from specialization and trade as long as it receives more than of ale for each pair of shoes it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of shoes for each keg of ale it exports to Croatia. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of ale) would allow both Wales and Croatia to gain from trade? Check all that apply. 3 kegs of ale per pair of shoes has a comparative advantage in the 8 kegs of ale per pair of shoes 18 kegs of ale per pair of shoes 5 kegs of ale per pair of shoes

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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