Question: Options for the 1st blank: Switzerland or Italy Options for the 2nd blank: Switzerland or Italy O…

30 Apr Question: Options for the 1st blank: Switzerland or Italy Options for the 2nd blank: Switzerland or Italy O…

Posted at 19:18h in 2Past Paper by Exams

Suppose that Italy and Switzerland both produce beer and olives. Italy’s opportunity cost of producing a crate of olives is 3 barrels of beer while Switzerland’s opportunity cost of producing a crate of olives is 11 barrels of beer. By comparing the opportunity cost of producing olives in the two countries, you can tell that production of olives and has a comparative advantage in the has a comparative advantage in the production of beer Suppose that Italy and Switzerland consider trading olives and beer with each other. Italy can gain from specialization and trade as long as it receives more than more than ▼ of beer for each crate of olives it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it receives of olives for each barrel of beer it exports to Italy. Based on your answer to the last question, which of the following prices of trade (that is, price of olives in terms of beer) would allow both Switzerland and Italy to gain from trade? Check all that apply. 1 barrel of beer per crate of olives 6 barrels of beer per crate of olives 13 barrels of beer per crate of olives 2 barrels of beer per crate of olives

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