Question

14. Assume the economies of Vermont and Maine only produce blueberries and maple syrup.

They only trade with each other. Assume the production schedule below shows the production possibilities for one year.

Vermont
Blueberries (Thousands of pounds)	Maple Syrup (Thousands of gallons)
0	50
10	40
20	30
30	20
40	10
50	0

Maine
Blueberries (Thousands of pounds)	Maple Syrup (Thousands of gallons)
0	50
30	40
60	30
90	20
120	10
150	0

C. If the two states are open to trade, which state will specialize in maple syrup?

D. What is the terms of trade range (in pounds of blueberries for a gallon of maple syrup) ?

Please answer to C & D. and please explain about them

Answer 1

C. Opportunity cost of 1blueberries for Vermont=1maple syrup

Opportunity cost of 1blueberries for Maine=0.33 maple syrup

Since opportunity cost of 1blueberries is lower for Maine, Maine has comparative advantage in Blueberries and Vermont has comparative advantage in maple syrup

D. Term of trade should lie in between their opportunity cost in order to have beneficial yare between them.

Thus term of trade should be

0.33 maple syrup<1 Blueberries<1maple syrup