Answered: Suppose that Portugal and Switzerland…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that Portugal and Switzerland both produce beer and stained glass. Portugal's opportunity cost of producing a pane of stained glass is 4 barrels of beer while Switzerland's opportunity cost of producing a pane of stained glass is 10 barrels of beer.

By comparing the opportunity cost of producing stained glass in the two countries, you can tell that (a. Portugal, b. Switzerland) has a comparative advantage in the production of stained glass and (a. Portugal, b. Switzerland) has a comparative advantage in the production of beer.

Suppose that Portugal and Switzerland consider trading stained glass and beer with each other. Portugal can gain from specialization and trade as long as it receives more than ____ of beer for each pane of stained glass it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it receives more than ____ of stained glass for each barrel of beer it exports to Portugal.

Based on your answer to the last question, which of the following prices of trade (that is, price of stained glass in terms of beer) would allow both Switzerland and Portugal to gain from trade? Check all that apply.

7 barrels of beer per pane of stained glass

16 barrels of beer per pane of stained glass

2 barrels of beer per pane of stained glass

9 barrels of beer per pane of stained glass

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

Definition Video Definition Ability of a country to produce goods and services at a lower opportunity cost compared to other countries. Here, opportunity cost refers to the forgone units of one good in order to produce one more unit of another good. For example, the opportunity cost of producing good X in country A is 2Y and in country B is 1.25Y. Country B has a lower opportunity cost of producing good X than country A. Therefore, country B has a comparative advantage in the production of good X. Video

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