Question

Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. If the terms of trade are established as 1 apple for 4 oranges, then:

Answer 1

Answer: a. there are no incentives for Beta to engage in international specialization and trade with Alpha.

Explanation:

Beta can produce 16 oranges or 4 apples in an hour. This means that for every Apple they produce, they can produce 4 oranges;

4 apples : 16 oranges

1 apples : 4 oranges

This is the same terms of trade being offered to them by Alpha because if they sell 1 apple to Alpha they will get 4 oranges. This is the same thing they will get when they are producing for themselves alone.

An incentive would have been them getting more oranges per apple than they can produce on their own if they sacrifice one apple which is not the case. There are simply no incentives for Beta to engage in international specialization and trade with Alpha.