In the United States, one worker can produce 10 tons of steel per day or 20 tons of chemicals per day. In the United Kingdom, one worker can produce 5 tons of steel per day or 15 tons of chemicals per day. International trade will occur between the United States and the United Kingdom so long as 1 ton of steel trades for:
A) at least 1 ton of chemicals, but no more than 2 tons of chemicals.
B) at least 2 tons of chemicals, but no more than 3 tons of chemicals.
C) at least 0.33 ton of chemicals, but no more than 0.5 ton of chemicals.
D) at least 0.55 ton of chemicals but no more than 0.75 ton of chemicals.

Question

Quizplus · Accepted Answer

In the United States, one worker can produce either 10 tons of steel or 20 tons of chemicals per day. Therefore, the opportunity cost of producing 1 ton of steel is 2 tons of chemicals. In the United Kingdom, one worker can produce either 5 tons of steel or 15 tons of chemicals per day. Therefore, the opportunity cost of producing 1 ton of steel is 3 tons of chemicals.

Based on the above calculation, the United States has a comparative advantage in producing steel and the United Kingdom has a comparative advantage in producing chemicals. In order for international trade to occur between the two countries, the price of steel and chemicals should lie within the range of opportunity cost of production for both countries.

Since the opportunity cost of producing 1 ton of steel for the United States is 2 tons of chemicals, the United States would be willing to trade 1 ton of steel for at least 2 tons of chemicals. Since the opportunity cost of producing 1 ton of steel for the United Kingdom is 3 tons of chemicals, the United Kingdom would be willing to trade 1 ton of steel for at most 3 tons of chemicals. Therefore, the acceptable range for the trade of 1 ton of steel is between 2 and 3 tons of chemicals, making choice B the correct answer.

In the United States, One Worker Can Produce 10 Tons