Question

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

Answer 1

One ton of beef costs 12 boxes of tulips.

Step-by-step explanation:

Netherlands can raise 100 tons of beef or produce 1,000 boxes of tulips:

Opportunity cost of producing one ton of beef = (1,000 ÷ 100) boxes of tulips

= 10 boxes of tulips

Belgium can raise 50 tons of beef or produce 750 boxes of tulips:

Opportunity cost of producing one ton of beef = (750 ÷ 50) boxes of tulips

= 15 boxes of tulips

Therefore,

Netherlands has a comparative advantage in the production of beef because it has the lower opportunity cost of producing beef as compared to the Belgium.

Hence, the Netherlands can trade with Belgium if and only if it gets more than 10 boxes of tulips in exchange of one ton of beef.

If one ton of beef is exchange with more than 10 boxes of tulips then it will be beneficial for Netherlands and if one ton of beef is exchange with less than 15 boxes of tulips then it will be beneficial for Belgium.

If One ton of beef costs 12 boxes of tulips, then both the nations experiencing a gains from the trade. Netherlands gains 2 boxes of tulips and Belgium gains 3 boxes of tulips.

So, it will be beneficial for both the countries to trade if 1 ton of beef costs ranges between 10 boxes of tulips and 15 boxes.