question archive Suppose that Paraguay can produce 12 wheat or 3 corn and Bolivia can produce 4 wheat or 2 corn
Suppose that Paraguay can produce 12 wheat or 3 corn and Bolivia can produce 4 wheat or 2 corn
Subject:EconomicsPrice:2.88 Bought3
Suppose that Paraguay can produce 12 wheat or 3 corn and Bolivia can produce 4 wheat or 2 corn. Suppose that opportunity costs are constant. Which of the following is a potentially agreeable trade arrangement for Paraguay and Bolivia?
A. Bolivia trades one corn to Paraguay for one wheat.
B. Paraguay trades one corn to Bolivia for three units of wheat.
C. Bolivia trades one corn to Paraguay for three units of wheat.
D. Paraguay trades one wheat to Bolivia for two corn
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The correct option is C. Bolivia trades one corn to Paraguay for three units of wheat.
This is the correct answer because the opportunity cost of both the goods is calculated. 12 units of wheat is produced in Paraguay and 4 units in Bolivia. 3 units of corn is produced in Paraguay and 2 units in Bolivia. Thus to produce additional unit of corn, 3 units of wheat need to sacrifice. Keeping the opportunity cost constant, Bolivia trades one corn to Paraguay for three units of wheat.
