Suppose that Poland and Wales both produce ale and glass. Poland's opportunity cost of producing a pane of glass is 4 kegs of ale while Wales's opportunity cost of producing a pane of glass is 12 kegs of ale.
By comparing the opportunity cost of producing glass in the two countries, you can tell thatWales has a comparative advantage in the production of glass andPoland has a comparative advantage in the production of ale.
Suppose that Poland and Wales consider trading glass and ale with each other. Poland can gain from specialization and trade as long as it receives more than of ale for each pane of glass it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of glass for each keg of ale it exports to Poland.
Based on your answer to the last question, which of the following prices of trade (that is, price of glass in terms of ale) would allow both Wales and Poland to gain from trade? Check all that apply.
8 kegs of ale per pane of glass
5 kegs of ale per pane of glass
3 kegs of ale per pane of glass
18 kegs of ale per pane of glass
