SCENARIO: CHILE AND ARGENTINA
Chile and Argentina each produce jellybeans and peanut butter, using
Labor as their only resource.Each country has 1,000 hours of labor.In
Chile, an hour produces a pound of jellybeans and 2 hours produce a
Pound of peanut butter.In Argentina, an hour produces a pound of
Jellybeans and 3 hours produces a pound of peanut butter.When they do
Not trade with each other, Chile consumes 600 pounds of jellybeans and
200 pounds of peanut butter, and Argentina consumes 400 pounds of
Jellybeans and 200 pounds of peanut butter.
Reference: Ref 210
(Scenario: Chile and Argentina) Argentina's gains from trade will be
Largest when the price of jellybeans is:
A)2 pounds of peanut butter per pound of jellybeans.
B)3 pounds of peanut butter per pound of jellybeans.
C)1/3 pound of peanut butter per pound of jellybeans.
D)1/2 pound of peanut butter per pound of jellybeans.

Question

SCENARIO: CHILE AND ARGENTINA
Chile and Argentina each produce jellybeans and peanut butter, using
Labor as their only resource.Each country has 1,000 hours of labor.In
Chile, an hour produces a pound of jellybeans and 2 hours produce a
Pound of peanut butter.In Argentina, an hour produces a pound of
Jellybeans and 3 hours produces a pound of peanut butter.When they do
Not trade with each other, Chile consumes 600 pounds of jellybeans and
200 pounds of peanut butter, and Argentina consumes 400 pounds of
Jellybeans and 200 pounds of peanut butter.
Reference: Ref 2­10
(Scenario: Chile and Argentina) Argentina's gains from trade will be
Largest when the price of jellybeans is:
A)2 pounds of peanut butter per pound of jellybeans.
B)3 pounds of peanut butter per pound of jellybeans.
C)1/3 pound of peanut butter per pound of jellybeans.
D)1/2 pound of peanut butter per pound of jellybeans.

Quizplus · Accepted Answer

Argentina's opportunity cost of producing jellybeans is 3 pounds of peanut butter per pound of jellybeans. Therefore, they gain the most from trade when they can trade jellybeans for peanut butter at a rate lower than their opportunity cost, such as 1/2 pound of peanut butter per pound of jellybeans.