Question

# suppose that France and Denmark both produce fish and olives. France’s opportunity cost of producing a crate of

olives is 3 pounds of fish while Denmark’s opportunity cost of producing a crate of olives is 11 pounds of fish.

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 fish.

Suppose that France and Denmark consider trading olives and fish with each other. France can gain from specialization and trade as long as it receives more than of fish 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 pound of fish it exports to France.

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

2 pounds of fish per crate of olives

13 pounds of fish per crate of olives

6 pounds of fish per crate of olives

4 pounds of fish per crate of olives

Macroeconomics