Assume that by devoting all its resources to the production of X,nation Alpha can produce 40 units of X.By devoting all its resources to Y,Alpha can produce 60Y.Comparable figures for nation Beta are,60X and 40Y.
-Refer to the above information.Alpha would prefer terms of trade at,or close to,1X = 2/3 Y.

Question

Quizplus · Accepted Answer

This can be determined by calculating the opportunity cost of producing X and Y for each nation. Alpha's opportunity cost of producing 1 unit of X is 1.5 units of Y (60Y/40X). Beta's opportunity cost of producing 1 unit of X is 2/3 units of Y (40Y/60X). Therefore, Alpha has a comparative advantage in producing Y and Beta has a comparative advantage in producing X. If Alpha trades 1X for less than 1.5Y, then it will be better off importing X and exporting Y. Since 1X = 2/3 Y satisfies this condition, Alpha would prefer terms of trade at, or close to, 1X = 2/3 Y.

Assume That by Devoting All Its Resources to the Production