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Question
MindTap-Cengage Learning- Not secure | ngcengage.com/static/nb/ui/index.html?nbId=718088&nbNodeld-270377933;&deploymentld-5673668009251; 130007362659&elSBN;= Google Chrome MINDTAP Homework (Ch 03) Due Today at 1 1 PM EST 5. The price of trade Suppose that Greece and Switzerland both produce beer and wine. Greece's opportunity cost of producing a bottle of wine is 3 barrels of beer while Switzerland's opportunity cost of producing a bottle of wine is 11 barrels of beer. By comparing the opportunity cost of producing wine in the two countries, you can tell that production of wine and has a comparative advantage in the has a comparative advantage in the production of beer. Suppose that Greece and Switzerland consider trading wine and beer with each other. Greece can gain from specialization and trade as long as it receives more than receives more than of beer for each bottle of wine it exports to Switzerland. Similarly, Switzerland can gain from trade as long as it of wine for each barrel of beer 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 beer) would allow both Switzerland and Greece to gain from trade? Check all that apply. 4 barrels of beer per bottle of wine 13 barrels of beer per bottle of wine 6 barrels of beer per bottle of wine 1 barrel of beer per bottle of wineExplanation / Answer
Greece has a comparative advantage in the production of wine because the opportunity of producing a bottle of wine is 3 barrels of beer, whereas, it is 11 barrels of beer for one bottle of wine for Switzerland. The opportunity cost is lower for Greece.
Switzerland has a comparative advantage in the production of beer as its opportunity cost is 1/11th of bottle of wine which is lower than Greece's 1/3rd of bottle of wine.
3 barrels,
1/11th of bottle of wine
4, 13, 6 barrels since these are higher than 3 barrels.