Chapter 3: Interdependence and the Gains from Trade- Mindtap The price of trade

5. The price of trade Suppose that Italy and Sweden both produce oil and wine. Italy's opportunity cost of producing a bottle of wine is 4 barrels of oil while Sweden'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 V has a comparative advantage in the production of wine and V has a comparative advantage in the production of oil. Suppose that Italy and Sweden consider trading wine and oil with each other. Italy can gain from specialization and trade as long as it receives more than V of oil for each bottle of wine it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than V of wine for each barrel of oil it exports to Italy. Based on your answer to the last question, which of the following prices of trade (that is, price of wine in terms of oil) would allow both Sweden and Italy to gain from trade? Check all that apply. 1 barrel of oil per bottle of wine 7 barrels of oil per bottle of wine 9 barrels of oil per bottle of wine 16 barrels of oil per bottle of wine