Answer :
To decide whether countries should engage in trade, we need to analyze their opportunity costs and compare them with the terms of trade. Here's a step-by-step analysis:
1. Identify Opportunity Costs:
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
2. Analyze Terms of Trade:
- Terms of Trade Scenario 1: 5 peaches for 1 shoe.
- Terms of Trade Scenario 2: 2 peaches for 1 shoe.
3. Compare Opportunity Costs with Terms of Trade:
- Scenario 1: 5 peaches for 1 shoe
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Comparison: If Country A trades 1 shoe for 5 peaches, then it receives 5 peaches for a shoe it could produce at an opportunity cost of only 3 peaches. Since 3 peaches < 5 peaches, trading is not beneficial for Country A.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
- Comparison: If Country B trades 5 peaches for 1 shoe, it means getting a shoe at a cost of 5 peaches instead of producing it for 6 peaches. Since 6 peaches > 5 peaches, trading is beneficial for Country B.
- Conclusion: According to Scenario 1 (5 peaches for 1 shoe), only Country B would benefit from trading, while Country A would not. This does not fit an ideal trade scenario where both countries should benefit.
- Scenario 2: 2 peaches for 1 shoe
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Comparison: If Country A trades 1 shoe for 2 peaches, it receives fewer peaches than it could produce itself (3 peaches > 2 peaches). Hence, trading is not beneficial for Country A.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
- Comparison: If Country B trades 2 peaches for 1 shoe, it means getting a shoe at a cost of 2 peaches instead of 6 peaches. Since 6 peaches > 2 peaches, trading is beneficial for Country B.
- Conclusion: According to Scenario 2 (2 peaches for 1 shoe), Country B benefits more from trading than producing the shoe itself, while Country A does not benefit as it is trading away for a lesser value.
4. Conclusion:
- Both Scenario 1 and Scenario 2 show that Country B benefits from trading, but Country A does not in either scenario. However, the answer should reflect a situation where both countries have an opportunity or a decisive scenario.
Despite the detailed comparison for better understanding, the correct overall answers based on the scenarios are:
- Option c: The countries should trade if the terms of trade were 5 peaches for 1 shoe.
- Option d: The countries should trade if the terms of trade were 2 peaches for 1 shoe.
In essence, for Country A to trade, the terms of trade must be better aligned with their opportunity cost, i.e., receiving more value. Both scenarios give correct trading grounds.
1. Identify Opportunity Costs:
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
2. Analyze Terms of Trade:
- Terms of Trade Scenario 1: 5 peaches for 1 shoe.
- Terms of Trade Scenario 2: 2 peaches for 1 shoe.
3. Compare Opportunity Costs with Terms of Trade:
- Scenario 1: 5 peaches for 1 shoe
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Comparison: If Country A trades 1 shoe for 5 peaches, then it receives 5 peaches for a shoe it could produce at an opportunity cost of only 3 peaches. Since 3 peaches < 5 peaches, trading is not beneficial for Country A.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
- Comparison: If Country B trades 5 peaches for 1 shoe, it means getting a shoe at a cost of 5 peaches instead of producing it for 6 peaches. Since 6 peaches > 5 peaches, trading is beneficial for Country B.
- Conclusion: According to Scenario 1 (5 peaches for 1 shoe), only Country B would benefit from trading, while Country A would not. This does not fit an ideal trade scenario where both countries should benefit.
- Scenario 2: 2 peaches for 1 shoe
- Country A: The opportunity cost of producing 1 shoe is 3 peaches.
- Comparison: If Country A trades 1 shoe for 2 peaches, it receives fewer peaches than it could produce itself (3 peaches > 2 peaches). Hence, trading is not beneficial for Country A.
- Country B: The opportunity cost of producing 1 shoe is 6 peaches.
- Comparison: If Country B trades 2 peaches for 1 shoe, it means getting a shoe at a cost of 2 peaches instead of 6 peaches. Since 6 peaches > 2 peaches, trading is beneficial for Country B.
- Conclusion: According to Scenario 2 (2 peaches for 1 shoe), Country B benefits more from trading than producing the shoe itself, while Country A does not benefit as it is trading away for a lesser value.
4. Conclusion:
- Both Scenario 1 and Scenario 2 show that Country B benefits from trading, but Country A does not in either scenario. However, the answer should reflect a situation where both countries have an opportunity or a decisive scenario.
Despite the detailed comparison for better understanding, the correct overall answers based on the scenarios are:
- Option c: The countries should trade if the terms of trade were 5 peaches for 1 shoe.
- Option d: The countries should trade if the terms of trade were 2 peaches for 1 shoe.
In essence, for Country A to trade, the terms of trade must be better aligned with their opportunity cost, i.e., receiving more value. Both scenarios give correct trading grounds.
