10. Y has a comparative advantage in Pizza manufacturing, so for it to successfully export DVD Players to X it will have to sell them below its own cost, which means subsidizing DVD Players manufacturers.
In X the opportunity cost of a DVD Player is 1 Pizza so DVD Players imported from Y must sell for no more than 1 Pizza, but since they cost 4/3 Pizza to make, the minimum subsidy necessary would be 1/3 of a Pizza per DVD Player.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved