Table 3-21
Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day.
-Refer to Table 3-21. At which of the following prices would both Jamaica and Norway gain from trade with each other?
A)1 radio for 1 cooler
B)1 radio for 4 coolers
C)1 radio for 10 coolers
D)Jamaica and Norway would both gain from trade at all of the above prices.

Question

Table 3-21
Assume that Jamaica and Norway can switch between producing coolers and producing radios at a constant rate. The following table shows the number of coolers or number of radios each country can produce in one day. 
-Refer to Table 3-21. At which of the following prices would both Jamaica and Norway gain from trade with each other?
A)1 radio for 1 cooler 
B)1 radio for 4 coolers 
C)1 radio for 10 coolers 
D)Jamaica and Norway would both gain from trade at all of the above prices.

Quizplus · Accepted Answer

The opportunity cost of producing one radio in Jamaica is 2 coolers (8 coolers/4 radios) and in Norway is 3 coolers (12 coolers/4 radios). At a rate of 1 radio for 4 coolers, Jamaica would have to give up 16 coolers to produce 4 radios, while Norway would have to give up 12 coolers to produce the same amount of radios. Jamaica would gain by only giving up 4 coolers to get 1 radio, while Norway would gain by only giving up 3 coolers to get 1 radio. Therefore, both Jamaica and Norway would gain from trade at a rate of 1 radio for 4 coolers.

Table 3-21 Assume That Jamaica and Norway Can Switch Between Producing Coolers