Table 3-11
Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-11. At which of the following prices would both Bahamas and Denmark gain from trade with each other?
A)1 radio for 1 cooler
B)1 radio for 4 coolers
C)1 radio for 10 coolers
D)1 radio for 15 coolers

Question

Table 3-11
Assume that Bahamas and Denmark can switch between producing coolers and producing radios at a constant rate.
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-Refer to Table 3-11. At which of the following prices would both Bahamas and Denmark gain from trade with each other?
A)1 radio for 1 cooler 
B)1 radio for 4 coolers 
C)1 radio for 10 coolers 
D)1 radio for 15 coolers

Quizplus · Accepted Answer

For both countries to gain from trade, the exchange rate must allow each country to trade based on their comparative advantage. At 1 radio for 4 coolers, Bahamas, which is more efficient in producing coolers, can trade less than 5 coolers (its opportunity cost) for a radio, and Denmark, which is more efficient in producing radios, can trade less than 1/15 of a radio for a cooler, benefiting both.

Table 3-11 Assume That Bahamas and Denmark Can Switch Between Producing Coolers