-Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta specialize based on comparative advantage, then they will trade if the rate of exchange is
A)5 knives for 1 fork, and Alpha imports forks.
B)0.5 knives for 1 fork, and Alpha imports forks.
C)0.5 fork for 1 knife, and Beta imports knives.
D)6 forks for 1 knife, and Beta imports knives.

Question

-Use the above table. Assuming constant opportunity costs, if countries Alpha and Beta specialize based on comparative advantage, then they will trade if the rate of exchange is
A)5 knives for 1 fork, and Alpha imports forks. 
B)0.5 knives for 1 fork, and Alpha imports forks. 
C)0.5 fork for 1 knife, and Beta imports knives. 
D)6 forks for 1 knife, and Beta imports knives.

Quizplus · Accepted Answer

Alpha should specialize in producing the good for which it has a lower opportunity cost. If Alpha imports forks, it means it has a comparative advantage in producing knives. The rate of exchange must be beneficial for both, and 0.5 knives for 1 fork suggests Alpha can trade fewer knives for more forks, aligning with comparative advantage.

-Use the Above Table