Figure 3-19
Chile's Production Possibilities Frontier
Colombia's Production Possibilities Frontier
-Refer to Figure 3-19.At which of the following prices would both Chile and Colombia gain from trade with each other?
A)6 pounds of soybeans for 9 pounds of coffee
B)8 pounds of soybeans for 20 pounds of coffee
C)11 pounds of soybeans for 33 pounds of coffee
D)Chile and Colombia could not both gain from trade with each other at any price.

Question

Figure 3-19
Chile's Production Possibilities Frontier
Colombia's Production Possibilities Frontier  
-Refer to Figure 3-19.At which of the following prices would both Chile and Colombia gain from trade with each other?
A)6 pounds of soybeans for 9 pounds of coffee 
B)8 pounds of soybeans for 20 pounds of coffee 
C)11 pounds of soybeans for 33 pounds of coffee 
D)Chile and Colombia could not both gain from trade with each other at any price.

Quizplus · Accepted Answer

For both countries to gain from trade, the trade price must be between their opportunity costs. If Chile's opportunity cost of soybeans is less than 1.5 pounds of coffee per pound of soybeans and Colombia's is more than 1.5, then 6 pounds of soybeans for 9 pounds of coffee (1.5 coffee per soybean) is beneficial for both.

Figure 3-19 Chile's Production Possibilities Frontier