Table 2.1.Output Possibilities of the U.S.and the U.K.

-Refer to Table 2.1.Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:
A) At least 1 television,but no more than 2 televisions
B) At least 2 televisions,but no more than 3 televisions
C) At least 3 televisions,but no more than 4 televisions
D) At least 4 televisions,but no more than 5 televisions

Question

Table 2.1.Output Possibilities of the U.S.and the U.K.
 
-Refer to Table 2.1.Mutually advantageous trade will occur between the United States and the United Kingdom so long as one ton of steel trades for:
A) At least 1 television,but no more than 2 televisions 
B) At least 2 televisions,but no more than 3 televisions 
C) At least 3 televisions,but no more than 4 televisions 
D) At least 4 televisions,but no more than 5 televisions

Quizplus · Accepted Answer

Based on the table, the U.S. can produce a ton of steel at a lower opportunity cost than the U.K. (20 televisions vs. 25 televisions). Therefore, the U.S. has a comparative advantage in producing steel. On the other hand, the U.K. can produce a television at a lower opportunity cost than the U.S. (10 tons of steel vs. 15 tons of steel). Therefore, the U.K. has a comparative advantage in producing televisions. For mutually advantageous trade to occur, the terms of trade should lie between the opportunity costs of the two countries. Based on the given options, option B fits this criteria as the U.S. would give up 2-3 televisions for a ton of steel while the U.K. would give up 10-15 tons of steel for a television. This benefits both countries as they are trading goods that they have a comparative advantage in, resulting in a more efficient allocation of resources and increased total output.