Refer to the figure shown,which represents the production possibilities frontiers for Countries A and B.Considering both country's production possibilities frontiers,we know that would both agree to terms of trade of one truck to:
A)two cars.
B)four cars.
C)six cars.
D)eight cars.

Question

Refer to the figure shown,which represents the production possibilities frontiers for Countries A and B.Considering both country's production possibilities frontiers,we know that would both agree to terms of trade of one truck to:
A)two cars. 
B)four cars. 
C)six cars. 
D)eight cars.

Quizplus · Accepted Answer

Country A has an opportunity cost of 1/2 truck for each car produced, while Country B has an opportunity cost of 1/4 truck for each car produced. Therefore, Country B has a comparative advantage in producing cars. To reach an agreement, Country A would need to offer a trade that is more beneficial for Country B than their domestic production. Country A could trade one truck for four cars, which is twice as many cars as they could produce domestically for the same amount of resources, while Country B would have to give up only 1/4 of a truck to produce those additional four cars. Therefore, both countries would benefit from this trade.

Refer to the Figure Shown,which Represents the Production Possibilities Frontiers