Table 3-27
Assume that Huang and Min can switch between producing parasols and producing porcelain plates at a constant rate.

-Refer to Table 3-27. At which of the following prices would both Huang and Min gain from trade with each other?
A)15 parasols for 10 plates
B)15 parasols for 6 plates
C)15 parasols for 3 plates
D)Huang and Min could not both gain from trade with each other at any price.

Question

Table 3-27
Assume that Huang and Min can switch between producing parasols and producing porcelain plates at a constant rate.
​ 
-Refer to Table 3-27. At which of the following prices would both Huang and Min gain from trade with each other?
A)15 parasols for 10 plates 
B)15 parasols for 6 plates 
C)15 parasols for 3 plates 
D)Huang and Min could not both gain from trade with each other at any price.

Quizplus · Accepted Answer

To determine if both producers can gain from trade, we need to find a rate at which they both have a comparative advantage in either producing parasols or porcelain plates.

Huang has a comparative advantage in producing parasols since he can produce them at a lower opportunity cost (1 plate for 1.5 parasols) while Min has a comparative advantage in producing porcelain plates since she can produce them at a lower opportunity cost (1 plate for 0.5 parasols).

At a rate of 15 parasols for 6 plates, Huang would give up 9 plates worth of production to produce 15 parasols (9 plates = 15 parasols x 0.6 opportunity cost), while Min would give up 15 parasols worth of production to produce 6 plates (15 parasols = 6 plates x 2.5 opportunity cost). This means that at this rate of exchange, both Huang and Min would be better off than producing solely for themselves since they would get more of the product they have a comparative advantage in producing. Therefore, the answer is B.

Table 3-27 Assume That Huang and Min Can Switch Between Producing Parasols