econ CE MCQ

46

In Country A, to produce 1 unit of X requires 20 units of resources, which can produce 20/25 unit of Y.
Therefore in Country A, 1X = 20/25 Y or 1X = 0.8 Y

In Country B, to produce 1 unit of X requires 10 units of resources, which can produce 10/25 unit of Y.
Therefore in Country A, 1X = 10/25 Y or 1X = 0.4 Y

For trade to by mutually beneficially, the terms of trade must line between the the relative cost of production of the two countries.
Therefore, the answer is B, 1X = 0.5Y


44

Relative cost of production in each country:
Country A, 1 DVD = 3 MP3
Country B, 1 DVD = 1.5 MP3

Country A should produce MP3 and Country B should produce DVD.

Because each country has 3 units of inputs and complete specialization takes place, the total out is
24 DVD and 90 MP3

The answer is B