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

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Alpha would prefer terms of trade at 1X = 2/3Y because it would allow them to trade less of their product X for more of product Y, which is beneficial given their production capabilities.

Assume That by Devoting All Its Resources to the Production