Consider the following scenario to answer the questions that follow.
On a particular Saturday, Mark Zuckerberg and Bill Gates can either plant trees or spread mulch in their gardens. Their maximum output per day is listed in the following table, along with blanks where you can calculate the opportunity cost.

-At what terms of trade (relative price ratio)could Zuckerberg and Gates specialize and trade with one another so that both have more trees planted and mulch spread than they could accomplish on their own?
A) 12 trees planted per 12 cubic yards of mulch spread
B) 10 trees planted per 12 cubic yards of mulch spread
C) 9 trees planted per 12 cubic yards of mulch spread
D) 7 trees planted per 12 cubic yards of mulch spread
E) 5 trees planted per 12 cubic yards of mulch spread

Question

Consider the following scenario to answer the questions that follow.
On a particular Saturday, Mark Zuckerberg and Bill Gates can either plant trees or spread mulch in their gardens. Their maximum output per day is listed in the following table, along with blanks where you can calculate the opportunity cost.
 
-At what terms of trade (relative price ratio)could Zuckerberg and Gates specialize and trade with one another so that both have more trees planted and mulch spread than they could accomplish on their own?
A) 12 trees planted per 12 cubic yards of mulch spread 
B) 10 trees planted per 12 cubic yards of mulch spread 
C) 9 trees planted per 12 cubic yards of mulch spread 
D) 7 trees planted per 12 cubic yards of mulch spread 
E) 5 trees planted per 12 cubic yards of mulch spread

Quizplus · Accepted Answer

For both Zuckerberg and Gates to benefit from trade, the terms of trade must fall between their opportunity costs. If Zuckerberg's opportunity cost is higher than Gates' for planting trees, then the terms of trade should be less than Zuckerberg's opportunity cost but more than Gates'. Option D provides a ratio that is likely to fall within this range, allowing both to specialize and trade beneficially.

Consider the Following Scenario to Answer the Questions That Follow