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 2/3 of a unit of Y, which is better than their opportunity cost of 1X = 1.5Y (since 20X = 30Y, 1X = 1.5Y).

Assume That by Devoting All Its Resources to the Production