Suppose that Spain and Germany both produce oil and shoes. Spain's opportunity cost of producing a pair of shoes is 3 barrels of oil while Germany's opportunity cost of producing a pair of shoes is 11 barrels of oil. 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.
Suppose that Spain and Germany both produce oil and shoes. Spain's opportunity cost of producing a pair of shoes is 3 barrels of oil while Germany's opportunity cost of producing a pair of shoes is 11 barrels of oil. 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.
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 Spain and Germany both produce oil and shoes. Spain's opportunity cost of producing a pair of shoes is 3 barrels of oil while Germany's opportunity cost of producing a pair of shoes is 11 barrels of oil.
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.
Suppose that Spain and Germany consider trading shoes and oil with each other. Spain 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 of shoes for each barrel of oil it exports to Spain.
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 Spain to gain from trade? Check all that apply.
4 barrels of oil per pair of shoes
1 barrel of oil per pair of shoes
13 barrels of oil per pair of shoes
2 barrels of oil per pair of shoes
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