Assume That Two Countries (Home and Foreign) Each Produce Two

question 137

Multiple Choice

Assume that two countries (Home and Foreign) each produce two goods (corn and wheat) under constant cost production. Home produces 0.5 ton of corn or 1 ton of wheat with a day of labor. Foreign produces 1 ton of corn and 0.5 ton of wheat. Without trade (in autarky) , Home's daily production is 20 tons of wheat and 10 tons of corn. At which international price will Home's gains from trade be largest?

• A) 1/2 ton of wheat per ton of corn
• B) 1 ton of wheat per ton of corn
• C) 1.5 tons of wheat per ton of corn
• D) 2 tons of wheat per ton of corn

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