Question

Suppose that Sweden can make a unit of furniture with 10 days of labor and a unit of steel with 15 days labor, while Germany can make a unit of furniture with 12 days of labor and a unit of steel with 12 days labor.
Suppose that with free trade 1.5 units of furniture exchange for one unit of steel. Then the gains from trade
Are shared equally by the two countries
All go to Sweden
Go to neither country
None of these
Are shared by the two countries, but in an indeterminate way

Answer 1

Answer:

All go to Sweden.

Explanation:

The two countries Germany and Sweden both can produce furniture and steel. Germany can produce one unit of steel or furniture in 12 days while Sweden can make one unit of steel in 15 days and one unit of furniture in 10 days. Germany has no advantage from the trade since it can produce both the goods in same time. Therefore all of the trade gain would belong to Sweden.