Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-2.Aruba and Iceland would not be able to gain from trade if Iceland's opportunity cost of one radio changed to
A) 0 coolers.
B) 0.25 coolers.
C) 2.5 coolers.
D) Aruba and Iceland can always gain from trade regardless of their opportunity costs.

Question

Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.
 
-Refer to Table 3-2.Aruba and Iceland would not be able to gain from trade if Iceland's opportunity cost of one radio changed to
A) 0 coolers. 
B) 0.25 coolers. 
C) 2.5 coolers. 
D) Aruba and Iceland can always gain from trade regardless of their opportunity costs.

Quizplus · Accepted Answer

In order for trade to be mutually beneficial, the opportunity cost of producing one unit of a good must be lower in one country than in the other. If Iceland's opportunity cost of one radio changed to 2.5 coolers (or higher), then it would be more efficient for Iceland to produce coolers and Aruba to produce radios, allowing both countries to specialize in the production of the good that they have a comparative advantage in. However, if Iceland's opportunity cost of one radio changed to 0 coolers or 0.25 coolers (or lower), then it would be more efficient for Iceland to produce radios and Aruba to produce coolers, but there would be no gain from trade as both countries would have the same opportunity cost for producing either good.

Table 3-2 Assume That Aruba and Iceland Can Switch Between Producing Coolers