. The price of trade

Suppose that Portugal and Austria both produce oil and shoes. Portugal's opportunity cost of producing a pair of shoes is 4 barrels of oil while Austria's opportunity cost of producing a pair of shoes is 8 barrels of oil.

By comparing the opportunity cost of producing shoes in the two countries, you can tell thatPortugal has a comparative advantage in the production of shoes andAustria has a comparative advantage in the production of oil.

Suppose that Portugal and Austria consider trading shoes and oil with each other. Portugal can gain from specialization and trade as long as it receives more than4 barrels of oil for each pair of shoes it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than1/8 pair of shoes for each barrel of oil it exports to Portugal.

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 Austria and Portugal to gain from trade?Check all that apply.

5 barrels of oil per pair of shoes

3 barrels of oil per pair of shoes

7 barrels of oil per pair of shoes

1 barrel of oil per pair of shoes