If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?

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BlackTom AI · Accepted Answer

The question describes a simple two-country, two-commodity trade scenario: Sweden exports cell phones to Denmark, while Denmark exports butter to Sweden. This pattern is commonly explained by comparative advantage, where each country specializes in producing the good for which it has a lower opportunity cost.
Option 1: 'Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.' This aligns with the idea that Sweden specializes in the good with the lower opportunity cost (cell phones) and Denmark specializes in the other good (butter), yielding mutual gains from trade. It correctly identifies both the comparative advantage relationships.
Option 2: 'Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter.' If both countries faced higher opportunity costs for each good, or the pattern were reversed, there would be no clear basis for the observed trade. This contradicts the typical explanation of trade patterns driven by comparative advantage and would not support mutual gains as described.
Option 3: 'The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden.' This statement focuses on butter’s opportunity cost in Denmark versus Sweden but ignores the broader comparative-advantage framework across both goods. While inter-country differences matter, the observed trade pattern is best explained by each country having a lower opportunity cost in a different good, not just butter.
Option 4: 'Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.' Absolute advantage talks about being more productive per unit input, but trade patterns can be explained without absolute advantages if there are comparative advantages. The given trade could occur even without either country having an absolute advantage in either good, so this statement is not necessary or sufficient to explain the pattern.

Spr25_ECON001A_39193 F. Quiz #1: Chapters 2 & 7

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?

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