This table shows how much cotton and cocoa can be produced in Peru and Brazil with one unit of equivalent resources.
TABLE 32-4
-Refer to Table 32-4.For trade to be advantageous to both Peru and Brazil,the number of bushels of cocoa beans that must be traded for a bale of cotton is

Question

This table shows how much cotton and cocoa can be produced in Peru and Brazil with one unit of equivalent resources.
  TABLE 32-4
-Refer to Table 32-4.For trade to be advantageous to both Peru and Brazil,the number of bushels of cocoa beans that must be traded for a bale of cotton is

Quizplus · Accepted Answer

From the table, we can see that Peru can produce 4 bales of cotton or 1 bushel of cocoa with one unit of equivalent resources. On the other hand, Brazil can produce 2 bales of cotton or 3 bushels of cocoa with one unit of equivalent resources. In order for trade to be advantageous to both countries, the opportunity cost of producing one bale of cotton must be lower in Peru than in Brazil, and the opportunity cost of producing one bushel of cocoa must be lower in Brazil than in Peru. 
The opportunity cost of one bale of cotton in Peru is 1/4 or 0.25 bushels of cocoa, while the opportunity cost of one bale of cotton in Brazil is 3/2 or 1.5 bushels of cocoa. Therefore, the ratio of the opportunity costs is 0.25/1.5 = 1/6. 
For trade to be advantageous to both countries, the terms of trade (the price ratio of cotton to cocoa) must lie between the opportunity costs of the two countries. So, the number of bushels of cocoa beans that must be traded for a bale of cotton is more than 2 (the opportunity cost in Brazil), but less than 6 (the opportunity cost in Peru). Hence, the correct answer is C.

This Table Shows How Much Cotton and Cocoa Can Be