Figure 18.1
-Refer to Figure 18.1.After trade and specialization begin,the maximum amount of umbrellas that Duckland can consume is:

Question

Quizplus · Accepted Answer

After trade and specialization, Duckland specializes in producing hats while Beaverville specializes in producing umbrellas. The table shows that the opportunity cost of producing 1 hat in Duckland is 1/2 umbrella while the opportunity cost of producing 1 umbrella in Beaverville is 2 hats. Therefore, Duckland has a comparative advantage in producing hats while Beaverville has a comparative advantage in producing umbrellas.

Assuming that the two countries trade at a rate of exchange of 1 hat for 2 umbrellas, Duckland can trade 30 hats for 60 umbrellas. This would mean that Duckland would have 40 hats and 60 umbrellas for a total consumption of 100 units.

On the other hand, if Duckland chooses not to trade and produce at its maximum capacity, it can produce 60 hats and 60 umbrellas for a total consumption of 120 units. However, this is not the best choice as trade and specialization can allow both countries to consume beyond their production possibilities frontier.

Therefore, the best choice is to trade with Beaverville and consume 100 units, represented by option B.

Figure 18.1 -Refer to Figure 18.1.After Trade and Specialization Begin,the Maximum Amount