Chapter 4, Problem 5MCQ

To determine

The question requires us to determine the higher price country B is willing to pay to purchase wheat from country A.

Explanation of Solution

A country sets the price of importing goods either less than or equal to the opportunity cost of producing that good.

The following graph represents the production of wheat and textile in country A and country B:

Country	Wheat (bushels)	Textile
Country A	200	100
Country B	100	150

From the given table:

The opportunity cost of producing a bushel of wheat in country A

  $\begin{array}{l}=\frac{100}{200}\\ =\frac{1}{2}\text{unit of textile}\end{array}$

The opportunity cost of producing a bushel of wheat in country B

  $\begin{array}{l}=\frac{150}{100}\\ =1\frac{1}{2}\text{unit of textile}\end{array}$

The opportunity cost of producing a bushel of wheat in country B is 1½ units of textile.

So, the highest price country B will pay to purchase wheat from country A is 1½ units of textiles. Option “d” is correct.