Suppose that France and Sweden both produce oil and cheese. France's opportunity cost of producing a pound of cheese is 3 barrels of oil while Sweden's opportunity cost of producing a pound of cheese is 11 barrels of oil. 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 oil.
Supposed that France and Sweden consider trading cheese and oil with each other. France can gain from specialization and trade as long as it receives more than ? of oil 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 barrel of oil it exports to France. Based on your answer to the last question, which of the following terms of trade (that is, price of cheese in terms of oil) would allow both Sweden and France to gain from trade?
a. 6 barrels of oil per pound of cheese
b. 13 barrels of oil per pound of cheese
c. 4 barrel of oil per pound of cheese
d. 2 barrels of oil per pound of cheese