Chapter 1R, Problem 17MCQ

To determine

The question requires us to determine the terms of trade that would be mutually beneficial for both the nations.

Explanation of Solution

The mutually beneficial terms of trade are found between the seller’s opportunity cost of producing a good and the buyer’s opportunity cost of the same good.

Nigel’s opportunity cost of making placemats is 1/3 in terms of maple syrup.

Pauline’s opportunity cost of making placemats is 1 in terms of maple syrup.

So, the best suitable terms of trade rate which is mutually beneficial for Nigel and Pauline will lie between these two opportunity costs range. Thus, Nigel will trade one placemat for ½ gallon of maple syrup from Pauline.

Therefore, option “a” is correct.

Economics Concept Introduction

The rate at which one commodity can be exchanged for another is known as terms of trade.