Question

Assume that by devoting all of its resources to the production of x, nation alpha can produce 40 units of x. by devoting all of its resources to y, alpha can produce 60y. comparable figures for national beta are 60x and 40y. we can conclude that:_______.
a. the terms of trade will be 3x equals 1y.
b. alpha should specialize in y and beta in x.
c. alpha should specialize in x and beta in y.
d. there is no basis for mutually beneficial specialization and trade.

Answer 1

Answer:

B) alpha should specialize in y and beta in x.

Explanation:

the production possibilities frontier of nation Alpha are:

• 40 units of X
• 60 units of Y

the opportunity cost of producing 1 unit of X = 60 / 40 = 1.5 units of Y

the opportunity cost of producing 1 unit of Y = 40 / 60 = 0.67 units of X

the production possibilities frontier of nation Beta are:

• 60 units of X
• 40 units of Y

the opportunity cost of producing 1 unit of X = 40 / 60 = 0.67 units of Y

the opportunity cost of producing 1 unit of Y = 60 / 40 = 1.5 units of X

Alpha should specialize in producing Y and Beta should specialize in producing X because their opportunity costs are lower.