Table 9-12
Production and
Consumption Production
Without Trade With Trade
Estonia and Morocco can produce both swords and belts. Table 9-12 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-12. All of the following are terms of trade that could possibly benefit both countries except
A) 2/3 of a belt : 1 sword
B) 3/5 of a belt : 1 sword
C) 7/10 of a belt : 1 sword
D) 1/4 of a belt : 1 sword

Question

Table 9-12
Production and
Consumption Production
Without Trade With Trade
  Estonia and Morocco can produce both swords and belts. Table 9-12 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 9-12. All of the following are terms of trade that could possibly benefit both countries except
A) 2/3 of a belt : 1 sword 
B) 3/5 of a belt : 1 sword 
C) 7/10 of a belt : 1 sword 
D) 1/4 of a belt : 1 sword

Quizplus · Accepted Answer

The terms of trade that could benefit both countries are those that are between the opportunity costs of producing swords and belts in each country. In this case, the opportunity cost of producing one sword in Estonia is 1.5 belts, while in Morocco it is 0.5 belts. Therefore, a fair trade would be between 0.5 and 1.5 belts per sword. Option D (1/4 of a belt : 1 sword) is below the range and would not benefit both countries. Options A, B, and C are within the range and could potentially benefit both countries.

Table 9-12 Production and