The opportunity cost of a table is 5 chairs in nation A and 1 chair in nation B.If the nations specialize and trade,an acceptable terms of trade for both nations would be 3 chairs per table.

Question

Quizplus · Accepted Answer

The opportunity cost for a table in Nation A is higher than in Nation B, meaning that Nation B has a comparative advantage in producing tables. With a terms of trade of 3 chairs per table, both nations can benefit from specialization and trade. Nation A can trade 3 chairs for 1 table, getting a better deal than if they produced the table themselves and gave up 5 chairs. Nation B can trade 1 table for 3 chairs, getting a better deal than if they produced chairs themselves and gave up 1/5th of a table.

The Opportunity Cost of a Table Is 5 Chairs in Nation