MC Qu. 84 Based... Based on the information in Table 35.1, assume China and the
ID: 1113929 • Letter: M
Question
MC Qu. 84 Based...
Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods. For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 ton of soybeans will exchange for
More than 3 computers but less than 5.
More than 1/5 of a computer but less than 1/3.
Less than 3 computers.
Zero computers.
Countr China United States Tons of Soybeans 100 150 Computers 300 750 Table 35.1 Full-Employment Output of GoodsExplanation / Answer
Option (1).
First we compute the Opportunity costs (OC) as follows.
For China, OC of Soybean = 300/100 = 3 Computers
For United States, OC of Soybean = 750/150 = 5 Computers
Trade is mutually beneficial when terms of trade (ToT) lies between the OC in two countries. So, acceptable ToT is:
3 Computers < ToT of soybean < 5 Computers
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