Suppose that France and Denmark both produce oil and olives. Frances’s opportuni
ID: 1230294 • Letter: S
Question
Suppose that France and Denmark both produce oil and olives. Frances’s opportunity cost of producing a crate of olives is 4 barrels of oil, while Denmark’s opportunity cost of producing a crate of olives is 7 barrels of oil.By comparing the opportunity cost of producing olives in the two countries, you can tell that _______has a comparative advantage in the production of olives and ______has a comparative advantage in the production of oil.
Suppose that France and Denmark consider trading olives and oil with each other. France can gain from specialization and trade as long as it receives more than _____ of oil for each crate of olives it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than _____ of olives for each barrel of oil it exports to France.
Based on your answer to the last question, which of the following terms of trade (that is, price of olives in terms of oil) would allow both Denmark and France to gain from trade? Check all that apply.
__ 6 barrels of oil per crate of olives
__ 3 barrels of oil per crate of olives
__ 5 barrels of oil per crate of olives
__ 8 barrels of oil per crate of olives
Explanation / Answer
Suppose that France and Denmark both produce oil and olives. Frances’s opportunity cost of producing a crate of olives is 4 barrels of oil, while Denmark’s opportunity cost of producing a crate of olives is 7 barrels of oil. By comparing the opportunity cost of producing olives in the two countries, you can tell that _France______has a comparative advantage in the production of olives and _Denmark_____has a comparative advantage in the production of oil. Suppose that France and Denmark consider trading olives and oil with each other. France can gain from specialization and trade as long as it receives more than __4___ of oil for each crate of olives it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than _1/7 crate____ of olives for each barrel of oil it exports to France. Based on your answer to the last question, which of the following terms of trade (that is, price of olives in terms of oil) would allow both Denmark and France to gain from trade? Check all that apply. _x_ 6 barrels of oil per crate of olives __ 3 barrels of oil per crate of olives x__ 5 barrels of oil per crate of olives __ 8 barrels of oil per crate of olives Hope this helps