Reference no: EM131825766

Suppose that Portugal and Sweden both produce rye and cheese. Portugal's opportunity cost of producing a pound of cheese is 5 bushels of rye while Sweden's opportunity cost of producing a pound of cheese is 11 bushels of rye.

By comparing the opportunity cost of producing cheese in the two countries, you can tell that ________ has a comparative advantage in the  production of cheese and ________ has a comparative advantage in the production of rye.

Suppose that Portugal and Sweden consider trading cheese and rye with each other. Portugal can gain from specialization and trade as long as it receives more than ________

of rye for each pound of cheese it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than ___________ of cheese for each bushel of rye it exports to Portugal.

Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of rye) would allow both Sweden and Portugal to gain from trade? Check all that apply.

16 bushels of rye per pound of cheese

6 bushels of rye per pound of cheese

7 bushels of rye per pound of cheese

1 bushels of rye per pound of cheese