$\begin{array}{|c|c|c|}
\hline \text { Country } & \text { Tons of Sovbeans } & \text { Computers } \
\hline \text { China } & 100 & 300 \
\hline \text { United States } & 150 & 750 \
\hline
\end{array}$
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 computer will exchange for
A) More than 3 tons of soybeans but less than 5.
B) More than 1/5 of a ton of soybeans but less than 1/3.
C) Less than 1/5 of a ton of soybeans.
D) Zero soybeans.

Question

Quizplus · Accepted Answer

From Table 35.1, the opportunity cost of 1 ton of soybeans in China is 2 computers, while in the United States it is 1 computer. Therefore, China has a comparative advantage in producing soybeans, while the United States has a comparative advantage in producing computers. For mutually beneficial trade, the countries should specialize in producing the good in which they have a comparative advantage and trade with each other. 
If the terms of trade are such that 1 computer exchanges for less than 1/5 of a ton of soybeans, then China would be better off not trading and producing soybeans domestically instead. If the terms of trade are such that 1 computer exchanges for more than 1/3 of a ton of soybeans, then the United States would be better off not trading and producing soybeans domestically instead. Therefore, the terms of trade must be between 1/5 and 1/3 of a ton of soybeans for mutually beneficial trade to occur.

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