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Suppose that Greece and Sweden both produce rye and cheese. Greece's opportunity cost of producing a pound of cheese is 3 bushels of rye while Sweden's opportunity cost of producing a pound of cheese is 11 bushels of rye. 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 rye. Suppose that Greece and Sweden consider trading cheese and rye with each other. Greece can gain from specialization and trade as long as it receives more than of rye 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 bushel of rye it exports to Greece.
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Suppose that Greece and Sweden both produce rye and cheese. Greece's opportunity cost of producing a...
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