Table 3-24
Assume that England and Spain can switch between producing cheese and producing bread at a constant rate.

-Refer to Table 3-24. At which of the following prices would both England and Spain gain from trade with each other?
A)16 units of bread for 16 units of cheese
B)16 units of bread for 24 units of cheese
C)16 units of bread for 48 units of cheese
D)England and Spain could not both gain from trade with each other at any price.

Question

Table 3-24
Assume that England and Spain can switch between producing cheese and producing bread at a constant rate.
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-Refer to Table 3-24. At which of the following prices would both England and Spain gain from trade with each other?
A)16 units of bread for 16 units of cheese 
B)16 units of bread for 24 units of cheese 
C)16 units of bread for 48 units of cheese 
D)England and Spain could not both gain from trade with each other at any price.

Quizplus · Accepted Answer

At a price of 16 units of bread for 48 units of cheese, England would specialize in bread production to produce 1600 units of bread and Spain would specialize in cheese production to produce 2400 units of cheese. They would then trade 800 units of cheese for 800 units of bread, resulting in both countries gaining from trade. This is shown by both countries producing and consuming more than they would without trade, as England would produce only 1200 units of bread and Spain would produce only 2000 units of cheese without trade.

Table 3-24 Assume That England and Spain Can Switch Between Producing Cheese