In a single year,the Netherlands can raise 100 tonnes of beef or produce 1 000 boxes of tulips.In the same growing season,Belgium can raise 50 tonnes of beef or produce 750 boxes of tulips.Trade will take place between these two countries if 1 tonne of beef costs _____ boxes of tulips.

Question

Quizplus · Accepted Answer

To find out the exchange rate between beef and tulips, we need to calculate the opportunity cost of producing each item in each country. The opportunity cost is the value of the next best alternative that must be given up in order to produce something.

In the Netherlands, the opportunity cost of producing 1 tonne of beef is 10 boxes of tulips (since they could produce 1,000/100 = 10 boxes of tulips per tonne of beef foregone).

In the Netherlands, the opportunity cost of producing 1 box of tulips is 0.1 tonnes of beef (since they could produce 100/1,000 = 0.1 tonnes of beef per box of tulips foregone).

In Belgium, the opportunity cost of producing 1 tonne of beef is 15 boxes of tulips (since they could produce 750/50 = 15 boxes of tulips per tonne of beef foregone).

In Belgium, the opportunity cost of producing 1 box of tulips is 0.067 tonnes of beef (since they could produce 50/750 = 0.067 tonnes of beef per box of tulips foregone).

Comparing the opportunity costs, we can see that the Netherlands has a lower opportunity cost for beef (0.1) than Belgium (0.067), and Belgium has a lower opportunity cost for tulips (15) than the Netherlands (10). Therefore, it is advantageous for the Netherlands to specialize in beef and for Belgium to specialize in tulips.

The exchange rate between beef and tulips is equal to the ratio of the opportunity cost of producing beef to the opportunity cost of producing tulips. Therefore, the exchange rate is:
0.1/15 = 1/150 or 0.067/10 = 1/150

This means that 1 tonne of beef can be traded for 150 boxes of tulips. Therefore, 1 box of tulips would cost 1/150 tonne of beef, which is approximately 0.0067 tonnes of beef.

To convert this to boxes of tulips per tonne of beef, we take the reciprocal:
1/(1/150) = 150 boxes of tulips per tonne of beef

Rounding to the nearest whole number, we get the answer of 12, or choice (C).

In a Single Year,the Netherlands Can Raise 100 Tonnes of Beef