9. Again, based on the graph to the right, which of the following trades is both feasible and would enable both countries to enjoy gains from trade?
- X sends 40 Pizzas to Y and Y sends 40 DVD Players to X. This offers no gains from trade for X and would not be accepted by Y because it costs them 53.3 Pizzas to make 40 DVD Players.
- X sends 40 Pizzas to Y and Y sends 30 DVD Players to X. This would not be accepted by X because 40 Pizzas costs them 40 DVD Players. Y might accept it since 30 DVD Players costs them 40 Pizzas, but it offers no gains from trade.
- X sends 40 DVD Players to Y and Y sends 40 Pizzas to X. This offers no gains from trade for X so it isn't correct, but Y would enjoy gains from trade since 40 DVD Players would costs them 53.3 Pizzas.
- X sends 40 DVD Players to Y and Y sends 50 Pizzas to X. X enjoys gains from trade because 40 DVD Players cost it 40 Pizzas but it gets 50 Pizzas in trade and Y enjoys gains since 40 DVD Players would costs them 53.3 Pizzas but they get them for 50.
- Since X has an absolute advantage in the production of both goods there are no possible gains from trade available. Gains from trade do not depend on absolute advantage, as long as there are differences in opportunity costs, gains from trade are possible.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved