Figure 34-6

-From Figure 34-6, one can infer that
A)Honduras will be willing to trade bananas for corn at a unit ratio of no less than 2 corn:1 banana.
B)Honduras will be willing to trade bananas as long as the unit exchange ratio is greater than 1/2 corn:1 banana.
C)Honduras has no potential to gain from trade.
D)Honduras will be unwilling to trade at an exchange ratio.

Question

Figure 34-6
​ 
-From Figure 34-6, one can infer that
A)Honduras will be willing to trade bananas for corn at a unit ratio of no less than 2 corn:1 banana. 
B)Honduras will be willing to trade bananas as long as the unit exchange ratio is greater than 1/2 corn:1 banana. 
C)Honduras has no potential to gain from trade. 
D)Honduras will be unwilling to trade at an exchange ratio.

Quizplus · Accepted Answer

The figure shows the production possibility frontiers for Honduras and two potential trading partners, A and B. The slope of the production possibility frontier represents the opportunity cost of producing one good in terms of the other. The slope of the production possibility frontier for Honduras is steeper (has a higher opportunity cost) for corn than for bananas, indicating that Honduras has a comparative advantage in producing bananas. To benefit from trade, Honduras will be willing to trade as long as it receives a unit exchange ratio that is greater than the opportunity cost of producing bananas domestically, which is shown to be 1/2 corn per banana in the graph. Therefore, option B is the best choice.

Figure 34-6 ​

Figure 34-6