Answer the following question based on the data provided in the tables below for two hypothetical nations, Wat and Xat. The nations have the production possibilities for rice and corn given in the following table: Refer to the data above. The mutually-beneficial terms of trade will be:

Question

Answer the following question based on the data provided in the tables below for two hypothetical nations, Wat and Xat. The nations have the production possibilities for rice and corn given in the following table:  Refer to the data above. The mutually-beneficial terms of trade will be:

Quizplus · Accepted Answer

To determine the mutually-beneficial terms of trade, we need to find the opportunity cost of producing rice and corn in each nation.

For Wat:
- The opportunity cost of producing 1 unit of rice is 0.5 units of corn (200/400).
- The opportunity cost of producing 1 unit of corn is 2 units of rice (400/200).

For Xat:
- The opportunity cost of producing 1 unit of rice is 1 unit of corn (100/100).
- The opportunity cost of producing 1 unit of corn is 1 unit of rice (100/100).

Wat has a comparative advantage in producing corn, while Xat has a comparative advantage in producing rice. Therefore, there is a potential for trade between the two nations as they can benefit from specializing in their respective areas of comparative advantage and trading with each other.

Based on the opportunity costs, the mutually-beneficial terms of trade will fall between the opportunity cost ratios of the two nations. In this case, the terms of trade will be between 2 and 4 units of rice for 1 unit of corn for Wat, and 1 and 1 unit of corn for 1 unit of rice for Xat.

Therefore, the best choice is D, between 3 and 5 units of rice for 1 unit of corn.

Answer the Following Question Based on the Data Provided in the Tables