Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Is this correct? 6. Terms of trade Suppose that Italy and Austria both produce beer and cheese. Italy's opportunity cost of producing a pound of

Is this correct?

image text in transcribed
6. Terms of trade Suppose that Italy and Austria both produce beer and cheese. Italy's opportunity cost of producing a pound of cheese is 4 barrels of beer, while .2 Austria's opportunity cost of producing a pound of cheese is 10 barrels of beer. By comparing the opportunity cost of producing cheese in the two countries, you can tell that Italy V has a comparative advantage in the production of cheese, and Austria V has a comparative advantage in the production of beer. Suppose that Italy and Austria consider trading cheese and beer with each other. Italy can gain from specialization and trade as long as it receives more than 10 barrels v of beer for each pound of cheese it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than 4 pounds V of cheese for each barrel of beer it clxports to Italy. Based on your answers to the previous question, which of the following terms of trade (that is, price of cheese in terms of beer) would allow both Austria and Italy to gain from trade? Check all that apply. 9 barrels of beer per pound of cheese 1 barrel of beer per pound of cheese 3 barrels of beer per pound of cheese 18 barrels of beer per pound of cheese

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Economic Development Of Latin America Since Independence

Authors: Luis Bértola, Luis Bértola

1st Edition

0191638242, 9780191638244

More Books

Students also viewed these Economics questions

Question

Explain the need for a new field of financial therapy.

Answered: 1 week ago

Question

1. What does this mean for me?

Answered: 1 week ago