Question

Suppose that Portugal and Sweden both produce oil and shoes. Portugal's opportunity cost of producing a pair of shoes is 5 barrels of oil while Sweden's opportunity cost of producing a pair of shoes is 10 barrels of oil. By comparing the opportunity cost of producing shoes in the two countries, you can tell that has a comparative advantage in the production of shoes and has a comparative advantage in the production of oil. Suppose that Portugal and Sweden consider trading shoes and oil with each other. Portugal can gain from specialization and trade as long as it receives more than of oil 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 barrel of oil it exports to Portugal. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of oil) would allow both Sweden and Portugal to gain from trade? Check all that apply. 1 barrel of oil per pair of shoes 9 barrels of oil per pair of shoes 3 barrels of oil per pair of shoes 8 barrels of oil per pair of shoes