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 = ⅔Y range.

Question

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The terms of trade must fall between the opportunity costs of the two nations. Alpha's opportunity cost of 1X is 1.5Y (60Y/40X), and Beta's opportunity cost of 1X is 0.67Y (40Y/60X). Therefore, the terms of trade will be between 1X = 1½Y and 1X = ⅔Y.

Assume That by Devoting All Its Resources to the Production