Question

Suppose that Greece and Switzerland both produce beer and olives. Greece's opportunity cost of producing a crate of olives is 5 barrels of beer while Switzerland's opportunity cost of producing a crate of olives is 10 barrels of beer.

By comparing the opportunity cost of producing olives in the two countries, you can tell that _____ has a comparative advantage in the production of olives and _____ has a comparative advantage in the production of beer.

Suppose that Greece and Switzerland consider trading olives and beer with each other. Greece can gain from specialization and trade as long as it receives more than _____ of beer for each crate of olives it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it receives more than _____ of olives for each barrel of beer it exports to Greece.

Based on your answer to the last question, which of the following prices of trade (that is, the price of olives in terms of beer) would allow both Switzerland and Greece to gain from trade? Check all that apply.

6 barrels of beer per crate of olives

11 barrels of beer per crate of olives

1 barrel of beer per crate of olives

7 barrels of beer per crate of olives