Answer the question on the basis of the following production possibilities tables for countries Alpha and Beta: Alpha Production Possibilities:

$\begin{array} { l c c c c } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline{ \mathrm { D } } \\ \text { Product } X & 3 & 2 & 1 & 0 \\ \text { Product } Y & 0 & 4 & 8 & 12 \end{array}$

Beta Production Possibilities:

$\begin{array} { l c c c c } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline { \mathrm { D } } \\\text { Product } X &6&4&2&0\\\text { Product } Y & 0 & 4 & 8 & 12 \end{array}$ Refer to the tables.Which one of the following terms of trade would be acceptable to both countries?

Question

Answer the question on the basis of the following production possibilities tables for countries Alpha and Beta: Alpha Production Possibilities:

\begin{array} { l c c c c } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline{ \mathrm { D } } \\ \text { Product } X & 3 & 2 & 1 & 0 \\ \text { Product } Y & 0 & 4 & 8 & 12 \end{array}

Beta Production Possibilities:

\begin{array} { l c c c c } & \underline { \mathrm { A } } & \underline { \mathrm { B } } & \underline { \mathrm { C } } & \underline { \mathrm { D } } \\\text { Product } X &6&4&2&0\\\text { Product } Y & 0 & 4 & 8 & 12 \end{array}

Refer to the tables.Which one of the following terms of trade would be acceptable to both countries?

Quizplus · Accepted Answer

Country Alpha can produce 3 units of X for 0 units of Y (point A) or 0 units of X for 12 units of Y (point D). So, the opportunity cost of producing 1 unit of X is 12/3 = 4 units of Y.Country Beta can produce 6 units of X for 0 units of Y (point A) or 0 units of X for 12 units of Y (point D). So, the opportunity cost of producing 1 unit of X is 12/6 = 2 units of Y.Therefore, the terms of trade that would be acceptable to both countries are those that lie between 2 and 4 units of Y for 1 unit of X. Only option A satisfies this condition.

Answer the Question on the Basis of the Following Production