Scenario 34.2 Suppose labor productivity differences are the only determinants of comparative advantage, and both Egypt and produce only corn and cocoa.In Egypt, 10 bushels of corn or 15 pounds of cocoa can be produced in a day.In Ghana, one day of labor can be used to produce either 2 bushels of corn or 8 pounds of cocoa.
Based on Scenario 34.2, which of the following terms of trade would benefit both countries?

Question

Quizplus · Accepted Answer

For Egypt, the opportunity cost of 1 pound of cocoa is 0.67 bushels of corn (10/15), and for Ghana, it is 0.25 bushels of corn (2/8). A beneficial trade must have a cocoa-to-corn ratio between these opportunity costs. 0.5 bushels of corn per pound of cocoa falls within this range.