Suppose that Slovenia and Liechtenstein both produce olive oil and shoes. Slovenia's opportunity cost of producing a pair of shoes is 6 crates of olive oil while Liechtenstein's opportunity cost of producing a pair of shoes is 11 crates of olive oil. By comparing the opportunity cost of producing shoes in the two countries, you can tell thatSlovenia has a comparative advantage in the production of shoes and Liechtenstein has a comparative advantage in the production of olive oil. Suppose that Slovenia and Liechtenstein consider trading shoes and olive oil with each other. Slovenia can gain from specialization and trade as long as it receives more than of olive oil for each pair of shoes it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as long as it receives more than of shoes for each crate of olive oil it exports to Slovenia. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of olive oil) would allow both Liechtenstein and Slovenia to gain from trade? Check all that apply. 7 crates of olive oil per pair of shoes 10 crates of olive oil per pair of shoes 17 crates of olive oil per pair of shoes 1 crate of olive oil per pair of shoes

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter33: International Trade
Section: Chapter Questions
Problem 30P: In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10...
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Suppose that Slovenia and Liechtenstein both produce olive oil and shoes. Slovenia's
opportunity cost of producing a pair of shoes is 6 crates of olive oil while Liechtenstein's
opportunity cost of producing a pair of shoes is 11 crates of olive oil.
By comparing the opportunity cost of producing shoes in the two countries, you can tell
thatSlovenia has a comparative advantage in the production of shoes and Liechtenstein has a
comparative advantage in the production of olive oil.
Suppose that Slovenia and Liechtenstein consider trading shoes and olive oil with each other.
Slovenia can gain from specialization and trade as long as it receives more than of olive oil for
each pair of shoes it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as
long as it receives more than of shoes for each crate of olive oil it exports to Slovenia.
Based on your answer to the last question, which of the following prices of trade (that is, price
of shoes in terms of olive oil) would allow both Liechtenstein and Slovenia to gain from trade?
Check all that apply.
7 crates of olive oil per pair of shoes
10 crates of olive oil per pair of shoes
17 crates of olive oil per pair of shoes
1 crate of olive oil per pair of shoes
Transcribed Image Text:Suppose that Slovenia and Liechtenstein both produce olive oil and shoes. Slovenia's opportunity cost of producing a pair of shoes is 6 crates of olive oil while Liechtenstein's opportunity cost of producing a pair of shoes is 11 crates of olive oil. By comparing the opportunity cost of producing shoes in the two countries, you can tell thatSlovenia has a comparative advantage in the production of shoes and Liechtenstein has a comparative advantage in the production of olive oil. Suppose that Slovenia and Liechtenstein consider trading shoes and olive oil with each other. Slovenia can gain from specialization and trade as long as it receives more than of olive oil for each pair of shoes it exports to Liechtenstein. Similarly, Liechtenstein can gain from trade as long as it receives more than of shoes for each crate of olive oil it exports to Slovenia. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of olive oil) would allow both Liechtenstein and Slovenia to gain from trade? Check all that apply. 7 crates of olive oil per pair of shoes 10 crates of olive oil per pair of shoes 17 crates of olive oil per pair of shoes 1 crate of olive oil per pair of shoes
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