$\begin{array}{|c|c|c|}
\hline \text { Country } & \text { Tons of Sovbeans } & \text { Computers } \
\hline \text { China } & 100 & 300 \
\hline \text { United States } & 150 & 750 \
\hline
\end{array}$
Table 35.1
Full-Employment Output of Goods Based on the information in Table 35.1, assume China and the United States have the same amount of resources with which to produce soybeans and computers and they produce no other goods.For trade to be mutually beneficial for both countries, the terms of trade will be such that 1 ton of soybeans will exchange for
A) More than 3 computers but less than 5.
B) More than 1/5 of a computer but less than 1/3.
C) Less than 3 computers.
D) Zero computers.

Question

Quizplus · Accepted Answer

The terms of trade must be between the opportunity costs of producing soybeans in both countries. For China, the opportunity cost of producing 1 ton of soybeans is 3 computers (300 computers / 100 tons of soybeans). For the United States, it's 5 computers (750 computers / 150 tons of soybeans). Therefore, for trade to be beneficial, 1 ton of soybeans must exchange for more than 3 computers (China's opportunity cost) but less than 5 computers (U.S.'s opportunity cost).

Table 351 Full-Employment Output of Goods Based on the Information in Sovbeans

Table 351
Full-Employment Output of Goods Based on the Information in Sovbeans