Suppose that the opportunity cost of producing a rocking chair in Mexico is 50 basketballs and the opportunity cost of a rocking chair in Japan is 80 basketballs.Japan and Mexico can realize mutual gains if the terms of trade are
A)greater than 80 basketballs per rocking chair,and Japan produces rocking chairs
B)between 50 and 80 basketballs per rocking chair,and Japan produces basketballs
C)greater than 80 basketballs per rocking chair,and Mexico produces basketballs
D)less than 50 basketballs per rocking chair,and Japan produces basketballs
E)between 50 and 80 basketballs per rocking chair,and Japan produces rocking chairs

Question

Quizplus · Accepted Answer

Japan should produce basketballs and Mexico should produce rocking chairs, as Japan has a higher opportunity cost for rocking chairs. The terms of trade should be between 50 and 80 basketballs per rocking chair for both countries to benefit.

Suppose That the Opportunity Cost of Producing a Rocking Chair