Family Pictares Problem Solving: Interdependence and the Gains from Trade Graded
ID: 1157969 • Letter: F
Question
Family Pictares Problem Solving: Interdependence and the Gains from Trade Graded Assignment | Read Chapter 3 1 Back to Assignment Due Sunday 06.24.18 at 11.00 PM Keep the Highest S. The price of trade Suppose that taly and Austria both produce beer and shoes Italy's opportunity cost of producing a pair of shoes is 4 barrels of beer whie Austria's opportunity cost of producing a pair of shoes is 10 barrels of beer by comparing the opportunity cost of producing shoes in the two countries, you can tel that Austria has a comparative adantage in te production of shoes and Austrie has a comparative advantage in the production of beer Suppose that Italy and Austria consider trading shoes and beer with each other. Italy can gain from specialization and trade as long as it receives more than abarrels ? af beer for each pair of shoent experts to Austra, smiany, kaba an gain from trade as long as n receives more than 1/10 pair of shoes for each barrel of beer it exports to taly. Based on your answer to the last question, which of the folliowing prices of trade (that is, price of shoes in terms of beer) would alow both Austria and Italy to gain from trade? Check a that apply 6 barrels of beer per pair of shoes 1 barrel of beer per pair of shoes 9 barrels of beer per pair of shoes ?8 barrels ofweper part shoes 6 8 9 0Explanation / Answer
Italy opportunity cost of shoes is less compared to Austria which makes Italy has comparative advantage in Shoes and Austria has comparative advantage in beer according to comparative advantage theory.
Second paragraph is correct
Italy required atleast 4beer for one pair of shoes
And Austria requires 1/10pairnof shoes for wine
Thus trading price which will be beneficial to both countries will be
4beer<1shoes<10beers
Thus ans is A and C.
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