Suppose that Italy and Sweden both produce fish and shoes. Italy\'s opportunity

Question

Suppose that Italy and Sweden both produce fish and shoes. Italy's opportunity cost of producing a pair of shoes is 4 pounds of fish, while Sweden's opportunity cost of producing a pair of shoes is 8 pounds of fish. By comparing the opportunity costs of producing shoes in the two countries, you can determine that__________has a comparative advantage in the production of shoes and_________has a comparative advantage in the production of fish. Suppose that Italy and Sweden consider trading shoes and fish with each other. Italy can gain from specialization and trade as long as it receives more than__________of fish for each pair of shoes it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than_________of shoes for each pound of fish it exports to Italy. Based on your answer to the last question, which of the following terms of trade (meaning the price of shoes In terms of fish) would allow both Sweden and Italy to gain from trade? Check all that apply. square 9 pounds of fish per pair of shoes square 3 pounds of fish per pair of shoes square 5 pounds of fish per pair of shoes square 7 pounds of fish per pair of shoes

Explanation / Answer

Italy has a comparative advantage in the production of shoes and Sweden has a comparative advantage in the production of fish.

Italy can gain from specialization and trade as long as it receives more than: 4 pounds of fish for each pair of shoes it exports to Sweden.

Sweden can gain from trade as long as it receives more than 1/8 pairs of shoes for each pound of fish it exports to Italy.

The terms of trade must lie in between the opportunity costs of the two countries
b) 5 pounds of fish per pair of shoes

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