Suppose that Spain can produce either 1000 bottles of wine or 500 bottles of olive oil per hour of production. Suppose also that Chile can produce either 200 bottles of wine or 20 bottles of olive oil per hour of production.

a) Could Spain and Chile improve upon autarky by trading these goods? Which country would sell which good at what rate?

b) Explain one way through which a Spanish exporter and a Chilean importer could enter an agreement to hedge each other against changes in the exchange rate euro/chilean peso.

Answer rating: 100% (QA)

Yes spain has COMPARATIVE advantage in producing wine and olive oil as compar... View the full answer