Suppose that Portugal and Austria both produce beer and cheese. Portugal's opportunity cost of producing a pound of cheese is 3 barrels of beer while Austria's opportunity cost of producing a pound of cheese is 11 barrels of beer. By comparing the opportunity cost of producing cheese in the two countries, you can tell thathas a comparative advantage in the production of cheese and has a comparative advantage in the production of beer.
Suppose that Portugal and Austria consider trading cheese and beer with each other. Portugal can gain from specialization and trade as long as it receives more thanof beer for each pound of cheese it exports to Austria. Similarly, Austria can gain from trade as long as it receives more than of cheese for each barrel of beer it exports to Portugal.
Based on your answer to the last question, which of the following prices of trade (that is, price of cheese in terms of beer) would allow both Austria and Portugal to gain from trade?
A. 4 barrels of beer per pound of cheese
B. 6 barrels of beer per pound of cheese
C. 13 barrels of beer per pound of cheese
D. 2 barrels of beer per pound of cheese

Portugal and Austria

Comparative Advantage in the Production of Beer and Cheese:

1a. Portugal

b. Austria

2. a. 3 barrels and

b. 0.09 or 1/11 pounds

3.  A. 4 barrels of beer per pound of cheese

Explanation:

a) Data and Calculations:

Portugal's opportunity cost of producing a pound of cheese = 3 barrels of beer

Austria's opportunity cost of producing a pound of cheese = 11 barrels of beer

Price of trade (cheese in terms of beer) = 11/3 = 3.667 = 4

b) Portugal's comparative advantage over the production of cheese is her economy's ability to produce cheese at a lower opportunity cost than Austria.  This comparative advantage gives Portugal the ability to sell cheese at a lower price than Austria and realize a more favorable balance of trade.

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the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.