Terms of trade Suppose that Greece and Austria both produce oil and wine. Greece’s opportunity cost of producing a bottle of wine is 4 barrels of oil, while Austria’s opportunity cost of producing a bottle of wine is 10 barrels of oil. By comparing the opportunity cost of producing wine in the two countries, you can tell that __(Greece / Austria) has a comparative advantage in the production of wine, and (Greece / Austria) has a comparative advantage in the production of oil. Suppose that Greece and Austria consider trading wine and oil with each other. Greece can gain from specialization and trade as long as it receives more than _(1/4barrel / 1/10barrel / 1barrel / 4barrels / 10barrels) of oil for each bottle of wine it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than ___(1/4barrel / 1/10barrel / 1barrel / 4barrels / 10barrels) of wine for each barrel of oil it exports to Greece. Based on answers to the previous question, which of the following terms of trade (that is, price of wine in terms of oil) would allow both Austria and Greece to gain from trade? Choose all that apply. 9 barrels of oil per bottle of wine 6 barrels of oil per bottle of wine 1 barrel of oil per bottle of wine 3 barrels of oil per bottle of wine

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Terms of trade

Suppose that Greece and Austria both produce oil and wine. Greece’s opportunity cost of producing a bottle of wine is 4 barrels of oil, while Austria’s opportunity cost of producing a bottle of wine is 10 barrels of oil.

By comparing the opportunity cost of producing wine in the two countries, you can tell that ______(Greece / Austria) has a comparative advantage in the production of wine, and ______(Greece / Austria) has a comparative advantage in the production of oil.

Suppose that Greece and Austria consider trading wine and oil with each other. Greece can gain from specialization and trade as long as it receives more than _______(1/4barrel / 1/10barrel / 1barrel / 4barrels / 10barrels) of oil for each bottle of wine it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than _______(1/4barrel / 1/10barrel / 1barrel / 4barrels / 10barrels) of wine for each barrel of oil it exports to Greece.

Based on answers to the previous question, which of the following terms of trade (that is, price of wine in terms of oil) would allow both Austria and Greece to gain from trade? Choose all that apply.

9 barrels of oil per bottle of wine

6 barrels of oil per bottle of wine

1 barrel of oil per bottle of wine

3 barrels of oil per bottle of wine

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