Reference no: EM13734264
Terms of trade
Suppose that Portugal and Austria both produce fish and stained glass. Portugal's opportunity cost of producing a pane of stained glass is 3 pounds of fish while Austria's opportunity cost of producing a pane of stained glass is 11 pounds of fish.
By comparing the opportunity cost of producing stained glass in the two countries, you can tell that has a comparative advantage in the production of stained glass and has a comparative advantage in the production of fish.
Suppose that Portugal and Austria consider trading stained glass and fish with each other. Portugal can gain from specialization and trade as long as it receives more than of fish for each pane of stained glass it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than of stained glass for each pound of fish it exports to Portugal.
Based on your answer to the last question, which of the following terms of trade (that is, price of stained glass in terms of fish) would allow both Austria and Portugal to gain from trade? Check all that apply.
6 pounds of fish per pane of stained glass
13 pounds of fish per pane of stained glass
1 pound of fish per pane of stained glass
2 pounds of fish per pane of stained glass
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: Suppose that Portugal and Austria consider trading stained glass and fish with each other. Portugal can gain from specialization and trade as long as it receives more than of fish for each pane of stained glass it exports to Austria. Similarly, Aus..
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