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. The terms of trade will be at or within the 1X = 1½Y to 1X = ?Y range.

Question

Quizplus · Accepted Answer

The terms of trade must be between the opportunity costs of the two nations. For Alpha, 1X = 1.5Y, and for Beta, 1X = 0.67Y. Therefore, the terms of trade will be between 1X = 1.5Y and 1X = 0.67Y.

Assume That by Devoting All Its Resources to the Production