Suppose that a worker in Country A can make either 25 bananas or 5 tomatoes each year.Country A has 200 workers.Suppose a worker in Country B can make either 18 bananas or 6 tomatoes each year.Country B has 400 workers.Suppose Country B decides to specialize in tomatoes,and Country A specializes in bananas.What terms of trade would both countries agree to? One tomato for:
A) one banana
B) two bananas
C) four bananas
D) six bananas

Question

Quizplus · Accepted Answer

Country A can produce 5000 bananas (25 bananas x 200 workers) or 1000 tomatoes (5 tomatoes x 200 workers). 
Country B can produce 2400 tomatoes (6 tomatoes x 400 workers) or 1200 bananas (18 bananas x 400 workers).

If Country A trades one banana to get one tomato, then they can get 1000 tomatoes for their surplus of bananas. If Country B trades one tomato to get one banana, then they can get 1200 bananas for their surplus of tomatoes.

However, if Country A trades four bananas to get one tomato, then they can get 1250 tomatoes for their surplus of bananas while Country B can get 4800 bananas for their surplus of tomatoes.

Thus, both countries would benefit the most from a trade where one tomato is traded for four bananas.

Suppose That a Worker in Country a Can Make Either