Question

In a single year, the Netherlands can raise 100 tonnes of beef or produce 1 000 boxes of tulips. In the same growing season, Belgium can raise 50 tonnes of beef or produce 750 boxes of tulips. Trade will take place between these two countries if 1 tonne of beef costs _____ boxes of tulips.

a. 20 b. 5 c. 12 d. 8 and can you explain how it is that answer please?

Answer 1

Answer

The correct answer is (c) 12

It is given that In a single year, the Netherlands can raise 100 tonnes of beef or produce 1000 boxes of tulips. This means that in order to raise 100 tonnes of beef they have to sacrifice 1000 boxes of tulips. Thus, in order to raise 1 tonnes of beef they have to sacrifice 1000/100 = 10 boxes of tulips. Hence opportunity cost of raising 1 ton of beef for Netherlands is  10 boxes of tulips.

It is given that In a single year, the Belgium can raise 50 tonnes of beef or produce 750 boxes of tulips. This means that in order to raise 50 tonnes of beef they have to sacrifice 750 boxes of tulips. Thus, in order to raise 1 tonnes of beef they have to sacrifice 750/50 = 15 boxes of tulips. Hence opportunity cost of raising 1 ton of beef for Belgium is  15 boxes of tulips.

As opportunity cost of producing beef is lesser for Netherlands thus Netherlands will specialize in Producing beef and export beef to Belgium.

As discussed above Netherlands can produce 1 ton of beef by sacrificing 10 boxes of tulips. Hence Netherlands will benefited from trade and will export if he gets more than 10 boxes of Tulips for 1 ton of Beef.

As discussed above Belgium can produce 1 ton of beef by sacrificing 15 boxes of tulips. Hence Belgium will benefited from trade If it get 1 ton of beef by sacrificing less than less than 15 boxes of tulip.

Thus Netherlands will get benefited and he will trade if he gets more than 10 boxes of Tulips for 1 ton of Beef i.e. 1B > 10T and Belgium will get benefited and he will trade if he pays less than 15 boxes of Tulips for 1 ton of Beef i.e. 1B < 15T.

Hence Both will be benefited and Trade will take place if 10T < 1B < 15T. That is Trade will take place  if 1 tonne of beef costs between 10 boxes of tulips and 15 boxes of tulips.

Thus, among the option that satisfies this inequality is (c) 12

Hence, the correct answer is (c) 12