If Sweden exports cell phones to Denmark and Denmark exports ...

[aabwk4]

If Sweden exports cell phones to Denmark and Denmark exports butter to Sweden, which of the following would explain this pattern of trade?
 
  A) The opportunity cost of producing butter in Denmark is higher than the opportunity cost of producing butter in Sweden.
  B) Sweden has a higher opportunity cost of producing cell phones than Denmark, and Denmark has a higher opportunity cost of producing butter.
  C) Sweden has a lower opportunity cost of producing cell phones than Denmark and Denmark has a comparative advantage in producing butter.
  D) Sweden must have an absolute advantage in producing cell phones and Denmark must have an absolute advantage in producing butter.

Question 2

Cole was discussing the market for cocoa beans with his friend John Schmidt.
 
  Cole said, Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has been rising and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping. Is Cole right? Briefly explain why or why not.

[lindahyatt42]

Answer to Question 1

C

Answer to Question 2

Cole has confused a change in demand as s result of a change in the expected future price of cocoa beans with a change in price. Following the announcement of the poor harvest buyers expected that the price of cocoa beans would rise. In anticipation of higher prices in the future, demand increased; this led to a higher equilibrium price. As long as buyers believe that the price of cocoa beans will rise in the future they will increase their demand today.