5. The price of trade Suppose that Greece and Austria both produce fish and wine. Greece's opportunity
Question:
5. The price of trade
Suppose that Greece and Austria both produce fish and wine. Greece's opportunity cost of producing a bottle of wine is 5 pounds of fish while Austria's opportunity cost of producing a bottle of wine is 10 pounds of fish.
By comparing the opportunity cost of producing wine in the two countries, you can tell thatAustria has a comparative advantage in the production of wine andAustria has a comparative advantage in the production of fish.
Suppose that Greece and Austria consider trading wine and fish with each other. Greece can gain from specialization and trade as long as it receives more than10 pounds of fish for each bottle of wine it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than of wine for each pound of fish it exports to Greece.
Based on your answer to the last question, which of the following prices of trade (that is, price of wine in terms of fish) would allow both Austria and Greece to gain from trade? Check all that apply.
12 pounds of fish per bottle of wine
6 pounds of fish per bottle of wine
1 pound of fish per bottle of wine
9 pounds of fish per bottle of wine
Managing Operations Across the Supply Chain
ISBN: 978-0078024030
2nd edition
Authors: Morgan Swink, Steven Melnyk, Bixby Cooper, Janet Hartley