Suppose that Spain and Germany both produce jeans and staine

Suppose that Spain and Germany both produce jeans and stained glass. Spain\'s opportunity cost of producing a pane of stained glass is 4 pairs of jeans while Germany\'s opportunity cost of producing a pane of stained glass is 10 pairs of jeans.

By comparing the opportunity cost of producing stained glass in the two countries, you can tell that the production of stained glass and has a comparative advantage in has a comparative advantage in the production of jeans. Suppose that Spain and Germany consider trading stained glass and jeans with each other. Spain can gain from specialization and trade as long as it receives more than receives more than of jeans for each pane of stained glass it exports to Germany. Similarly, Germany can gain from trade as long as it of stained glass for each pair of jeans it exports to Spain. 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 Germany and Spain to gain from trade? Check all that apply. 9 pairs of jeans per pane of stained glass 1 pair of jeans per pane of stained glass 2 pairs of jeans per pane of stained glass 7 pairs of jeans per pane of stained glass

Solution

Answer
Spain -first blank
Spain have lower opportunity cost in it
Germany -second blank
Germany have lower opportunity cost in it
4 pairs of jeans-third blank
the opportunity cost 4 pair of jeans which is minimum possible trade
0.1 pane-fourth blank
the opportunity cost of Germany for jeans is =1/10=0.1 stained glass
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option first and last

The exchange is possible if the jeans between 4 to 10 pair of jeans for 1 pane of stained glass.