Suppose that italy and austria both produce beer and wine. italy's opportunity cost of producing a bottle of wine is 4 barrels of beer while austria's opportunity cost of producing a bottle of wine is 11 barrels of beer.
by comparing the opportunity cost of producing wine in the two countries, you can tell that italy has a comparative advantage in the production of wine and austria has a comparative advantage in the production of beer.
suppose that italy and austria consider trading wine and beer with each other. italy can gain from specialization and trade as long as it receives more than 4 barrels of beer for each bottle of wine it exports to austria. similarly, austria can gain from trade as long as it receives more than 1/11 bottle of wine for each barrel of beer it exports to italy.
based on your answer to the last question, which of the following terms of trade (that is, price of wine in terms of beer) would allow both austria and italy to gain from trade? check all that apply.
9 barrels of beer per bottle of wine
18 barrels of beer per bottle of wine
7 barrels of beer per bottle of wine
3 barrels of beer per bottle of wine