Business, 28.05.2021 22:00 jalonjonrs5991
Suppose that Greece and Germany both produce oil and shoes. Greece's opportunity cost of producing a pair of shoes is 5 barrels of oil, while Germany's opportunity cost of producing a pair of shoes is 11 barrels of oil.
1. By comparing the opportunity cost of producing shoes in the two countries, you can tell that has a comparative advantage in the production of shoes and has a comparative advantage in the production of oil.
2. Suppose that Greece and Germany consider trading shoes and oil with each other. Greece can gain from specialization and trade as long as it receives more than of oil for each pair of shoes it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than for each barrel of oil it exports to Greece.
3. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of oil) would allow both Germany and Greece to gain from trade?
a. 1 barrel of oil per pair of shoes
b. 17 barrels of oil per pair of shoes
c. 9 barrels of oil per pair of shoes
d. 10 barrels of oil per pair of shoes
Answers: 3
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Suppose that Greece and Germany both produce oil and shoes. Greece's opportunity cost of producing a...
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