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Alpha can produce either 18 oranges or 9 apples an hour, while Beta can produce either 16 oranges or 4 apples an hour. If the terms of trade are established as 1 apple for 2 oranges, then:
a) there are no incentives for Alpha to specialize and trade with Beta.
b) it is in the interest of both countries to specialize and trade with one another.
c) it is in the interest of Beta to grow oranges and trade for apples.
d) there are no incentives for Beta to engage in international specialization and trade of apples and oranges.

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jepessoa

Answer:

The answer is: C) it is in the interest of Beta to grow  oranges and trade for apples.

Explanation:

Since an apple trades for 2 oranges, we can assign them the following value:

  • Each apple costs $2
  • Each orange costs $1

If Beta wants to maximize its sales then it can produce 16 oranges which it can trade for 8 apples. Then they can sell the apples for a total of $16.

Instead if they focus only on producing 4 apples per hour, their total sale would be $8.

For Alpha this equation is irrelevant since whatever product they produce their total sales would be $16.

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