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 60 Y. Comparable ﬁgures for nation Beta
are 60 X and 40 Y. Beta would prefer terms of trade at, or close to, 1X = 1½Y.

Question

Quizplus · Accepted Answer

Nation Beta has a comparative advantage in producing X, while Nation Alpha has a comparative advantage in producing Y. Therefore, it is in their best interest to trade with each other to benefit from each other's comparative advantage. Nation Beta prefers terms of trade where they can get more Y for their X, which is 1X = 1.5Y. This shows that Nation Beta values Y more than X and wants to consume more of it.

Assume That by Devoting All Its Resources to the Production