Table 9-6
Output per hour Production and Production
of work Consumption without Trade with Trade

Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.All of the following are terms of trade that could possibly benefit both countries except
A)4/5 of a hat : 1 clock.
B)1.2 hats : 1 clock.
C)1.5 hats : 1 clock.
D)2.25 hats : 1 clock.

Question

Table 9-6
Output per hour Production and Production
of work Consumption without Trade with Trade
  
Denmark and Belize can produce both clocks and hats. Each country has a total of 200 available labor hours for the production of clocks and hats. Table 9-6 shows the output per hour of work, the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-6.All of the following are terms of trade that could possibly benefit both countries except
A)4/5 of a hat : 1 clock. 
B)1.2 hats : 1 clock. 
C)1.5 hats : 1 clock. 
D)2.25 hats : 1 clock.

Quizplus · Accepted Answer

A terms of trade that would benefit both countries must fall between Denmark's opportunity cost and Belize's opportunity cost for the productions of the two goods. We can calculate Denmark's opportunity cost for producing one clock by dividing the number of labor hours required to produce one clock by the number of labor hours required to produce one hat, which is 1.5/1 = 1.5 hats. Belize's opportunity cost for producing one clock is 2 hats (given in the table). Therefore, the terms of trade that fall between 1.5 hats per clock and 2 hats per clock would benefit both countries. Option D, 2.25 hats per clock, falls outside of this range and would not benefit both countries.

Table 9-6 Output Per Hour Production and Production