Sign In Sign Up Ask an AI advisor
jchse4365
jchse4365
08.03.2021 • 
Business

Suppose that Greece and Austria both produce rye and cheese. Greece's opportunity cost of producing a pound of cheese is 4 bushels of rye while Austria's cost of producing a pound of cheese is 10 bushels of rye. By comparing the opportunity of Cheese in the two countries, you can tell that has a comparative advantage in the production of cheese and .Suppose that Greece and Austria consider trading cheese and rye with each other. Greece can gain from specialization and trade as long as it receives more than of rye for each pound of cheese it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than of cheese for each bushel of rye it exports to Greece.

Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of rye) would allow both Austria and Greece to gain from trade?

a. 9 bushels of rye per pound of cheese
b. 2 bushels of rye per pound of cheese
c. 1 bushel of rye per pound of cheese
d. 7 bushels of rye per pound of cheese

Solved
Show answers

Ask an AI advisor a question

I want advice