Assume that by devoting all its resources to the production of X, nation Alpha can produce 20 units of X.By devoting all its resources to Y, Alpha can produce 30Y.Comparable figures for nation Beta are
60X and 40Y.Alpha would prefer terms of trade at, or close to, 1X = 2/3Y.

Question

Quizplus · Accepted Answer

Alpha would prefer terms of trade at 1X = 2/3Y because it would allow them to trade 1 unit of X for more than the opportunity cost of producing X themselves, which is 1.5Y (since 20X = 30Y, 1X = 1.5Y). This would be beneficial for Alpha.

Assume That by Devoting All Its Resources to the Production