Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

-Refer to Table 3-2.At which of the following prices would both Aruba and Iceland gain from trade with each other?
A) 2 radios for 4 coolers
B) 2 radio for 6 coolers
C) 2 radio for 10 coolers
D) Aruba and Iceland could not both gain from trade with each other at any price.

Question

Table 3-2
Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.
 
-Refer to Table 3-2.At which of the following prices would both Aruba and Iceland gain from trade with each other?
A) 2 radios for 4 coolers 
B) 2 radio for 6 coolers 
C) 2 radio for 10 coolers 
D) Aruba and Iceland 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 Aruba's opportunity cost is less than 3 coolers per radio and Iceland's is more than 3 coolers per radio, then 2 radios for 6 coolers (3 coolers per radio) is a beneficial trade for both.

Table 3-2 Assume That Aruba and Iceland Can Switch Between Producing Coolers