Question

Suppose that Portugal and Denmark both produce jeans and stained glass. Portugal's opportunity cost of producing a pane of stained glass is 3 pairs of jeans while Denmark's opportunity cost of producing a pane of stained glass is 11 pairs of jeans.

By comparing the opportunity cost of producing stained glass in the two countries, you can tell that ____(Portuga or Denmark) has a comparative advantage in the production of stained glass and _____ (Denmark or Portugal) has a comparative advantage in the production of jeans.

Suppose that Portugal and Denmark consider trading stained glass and jeans with each other. Portugal can gain from specialization and trade as long as it receives more than _____pairs   of jeans for each pane of stained glass it exports to Denmark. Similarly, Denmark can gain from trade as long as it receives more than ____ pane of stained glass for each pair of jeans it exports to Portugal.

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

7 pairs of jeans per pane of stained glass

18 pairs of jeans per pane of stained glass

1 pair of jeans per pane of stained glass

5 pairs of jeans per pane of stained glass

Answer 1