Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X.By devoting all its resources to Y, Alpha can produce 60Y.Comparable figures for nation Beta are, 60X and 40Y.Refer to the above information.The terms of trade will be at or within the 1X = 1 1/2 Y to 1X = 2/3 Y range.

Question

Quizplus · Accepted Answer

To find the terms of trade, we need to compare the opportunity costs of each nation. For Alpha, the opportunity cost of producing one unit of X is 1.5 units of Y (60Y/40X). For Beta, the opportunity cost of producing one unit of X is 2/3 units of Y (40Y/60X). Therefore, the terms of trade will be advantageous for Alpha if they can trade at a rate better than 1X = 1.5Y, and advantageous for Beta if they can trade at a rate better than 1X = 2/3Y. The given range of 1X = 1 1/2 Y to 1X = 2/3 Y is within both of these ranges, so the statement is true.

Assume That by Devoting All Its Resources to the Production