QUESTION 42 2 points Save Answer Chiles Preduction Possibili

QUESTION 42 2 points Save Answer Chile\'s Preduction Possibilities Frontier Colombia\'s Production Possibilities Frentier Refer to the Figure above. At which of the following prices would both Chile and Columbia gain from trade with each other? 11 pounds of soybeans for 33 pounds of coffee B. Chile and Columbia could not both gain from trade with each other at any price OC. 8 pounds of soybeans for 20 pounds of coffee OD. 6 pounds of soybeans for 9 pounds of coffee

Solution

D. 6 Pounds of soybeans for 9 pounds of coffee.

For Chile, the opportunity cost of one pound of coffee is 3/4 pound of soybeans and for Colombia’s, the opportunity cost of one pound of coffee is 1/2 pound of soybeans.

Similarly, Chile’s opportunity cost of one pound of soybeans is 4/3 pounds of coffee and Colombia’s opportunity cost of one pound of soybeans is 2 pounds of coffee.

Therefore, we are looking for a trade ratio between ½ and ¾, Option D, i.e. 6 pounds of soybeans for 9 pounds of coffee works as it is a trade ratio of 2/3 which falls in our range.