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.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the "without trade" numbers?
A)-100
B)100
C)120
D)250

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.If the actual terms of trade are 1 hat for 1.8 clocks and 150 hats are traded, how many clocks will Belize gain compared to the "without trade" numbers?
A)-100 
B)100 
C)120 
D)250

Quizplus · Accepted Answer

Without trade, Belize produces 50 clocks and 100 hats, and with trade, it produces 70 clocks and 80 hats. This means that Belize gains 20 clocks from trade. Since 1 hat is traded for 1.8 clocks, Belize trades 150/1 = 150 hats. Thus, Belize gains (150/1.8) = 83.33 clocks. However, since Belize can only produce a maximum of 200 labor hours worth of goods, it can only produce a total of (200/2) = 100 clocks and 100 hats. Therefore, Belize can only gain a maximum of 50 clocks. Subtracting the 20 clocks gained from trade from this maximum, Belize gains 30 clocks compared to the "without trade" numbers. Therefore, the answer is C) 120.

Table 9-6 Output Per Hour Production and Production