Principles of Micro.. sec xyt.Madtap. Cengige Lear e CSecure https//ng.cengage 5

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Principles of Micro.. sec xyt.Madtap. Cengige Lear e CSecure https//ng.cengage 5% MINDTAP Homework (Ch 03) Back to Assignment Attempts: x evo/indexhtmi?deploymentld-567366324276124424485784088eISBN-978 Average: 13 5. The price of trade Suppose that Portugal and Austria both produce beer and shoes Portugal's opportunity cost of producing a pair of shoes is 4 barrels of beer whil Austria's opportunity cost of producing a pair of shoes is 10 barrels of beer comparing the opportunity cost of producing shoes in the two countries, you can tell thathas a comperative advantage in the production of shoes and hns s comparative advantage in the production of beer. Suppose that Portugal and Austrua consider trading shoes and beer with h each other. Portugal can gain from specialization and trade as long as it receives more than for each pair of shoes it exports to Austria. Similarly, Austria can gain from trade as long as it receive of shoes for each barrel of beer it exports to Portugal. more than on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of beer) would alow both Austria a Portugal to gain from trade? Check al that apply. D 1 barrel of beer per pair of shoes 8barrels of beer per par of shoes U6 barrels of beer per pan of shoes 2barrels of beer per pair of shoes esc z*

Explanation / Answer

5.

Correct Answer:

A.

Portugal                       (it has relatively lower opportunity cost of producing shoes)

Austria                        (it has relatively lower opportunity cost of producing beer)

B.

4 Barrels of beer

(1/10) pair of shoes

Correct Answer:

B

C

Explanation:

If Portugal gets 8 barrels of beer for 1 pair of shoes, then Portugal is better off as they get more than 4 barrels of beer. Similarly, Austria gets (1/8) pair of shoes for each barrel of beer exported, and it is more than 1/10 pair of shoes as a minimum requirement. So, both the nations are better off with the trade.

If Portugal gets 6 barrels of beer for 1 pair of shoes, then Portugal is better off as they get more than 4 barrels of beer. Similarly, Austria gets (1/6) pair of shoes for each barrel of beer exported, and it is more than 1/10 pair of shoes as a minimum requirement. So, both the nations are better off with the trade.

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