Table 18-6
Production and
Consumption Production
Without Trade With Trade
Denmark and Belize can produce both clocks and hats. Table 18-6 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 18-6.All of the following are terms of trade that could possibly benefit both countries except

Question

Table 18-6
Production and
Consumption Production
Without Trade With Trade
  Denmark and Belize can produce both clocks and hats. Table 18-6 shows the production and consumption quantities without trade, and the production numbers with trade.
-Refer to Table 18-6.All of the following are terms of trade that could possibly benefit both countries except

Quizplus · Accepted Answer

The terms of trade that benefit both countries must lie between the opportunity costs of both countries. The opportunity cost of producing a clock in Denmark is 2 hats, and the opportunity cost of producing a clock in Belize is 1/2 hat. The range of terms of trade must be between 1/2 hat: 1 clock to 2 hats: 1 clock. This means that options A (1/5 of a hat: 1 clock), B (1/3 of a hat: 1 clock), and C (1/2 of a hat: 1 clock) could all benefit both countries. However, option D (3/4 of a hat: 1 clock) is not within the acceptable range of terms of trade and would not benefit both countries.

Table 18-6 Production and