The price of trade Suppose that Spain and Sweden both produce jeans and cheese. Spain's opportunity cost of producing a pound of cheese is 3 pairs of jeans while Sweden's opportunity cost of producing a pound of cheese is 11 pairs of jeans. By comparing the opportunity cost of producing cheese in the two countries, you can tell that has a comparative advantage in the production of cheese and has a comparative advantage in the production of jeans. Suppose that Spain and Sweden consider trading cheese and jeans with each other. Spain can gain from specialization and trade as long as it receives more than of jeans for each pound of cheese it exports to Sweden. Similarly, Sweden can gain from trade as long as it receives more than of cheese 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 cheese in terms of jeans) would allow both Sweden and Spain to gain from trade?a. 1 pair of jeans per pound of cheese b. 2 pairs of jeans per pound of cheese c. 6 pairs of jeans per pound of cheese d. 4 pairs of jeans per pound of cheese

A country has certain resources which can help it produce and specialize only in few goods that it can trade. A country can not specialize in the production of all the goods because of the limited resources present in it.

Depending on the good on which it specializes in producing, it should focus mainly on the production of that good only because that will help that country to gain benefits and therefore earn more profit compared to the production of the other goods.