Reference no: EM132476259

The price of trade

Suppose that France and Germany both produce beer and shoes. France's opportunity cost of producing a pair of shoes is 4 barrels of beer while Germany'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 tell that (France or Germany) has a comparative advantage in the production of shoes and (France or Germany) has a comparative advantage in the production of beer.

Suppose that France and Germany consider trading shoes and beer with each other. France can gain from specialization and trade as long as it receives more than (1 barrel, 1/10 barrel, 1/4 barrel, 4 barrels, or 10 barrels) of beer for each pair of shoes it exports to Germany. Similarly, Germany can gain from trade as long as it receives more than (1 pair, 1/10 pair, 1/4 pair, 4 pairs, or 10 pairs) of shoes for each barrel of beer it exports to France.

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

_ 6 barrels of beer per pair of shoes

_ 9 barrels of beer per pair of shoes

_ 18 barrels of beer per pair of shoes

_ 3 barrels of beer per pair of shoes