Suppose that Italy and Denmark both produce beer and olives. Italy’s opportunity cost of producing a crate of olives is 3 barrels of beer while Denmark’s opportunity cost of producing a crate of olives is 11 barrels of beer.
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 beer.
Suppose that Italy and Denmark consider trading olives and beer with each other. Italy can gain from specialization and trade as long as it receives more than ___ of beer 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 beer it exports to Italy.
Based on your answer to the last question, which of the following prices of trade (that is, price of olives in terms of beer) would allow both Denmark and Italy to gain from trade? Check all that apply.
__13 barrels of beer per crate of olives
__2 barrels of beer per crate of olives
__10 barrels of beer per crate of olives
__1 barrel of beer per crate of olives