Mexico's Oil and Soybeans Trade Analysis
What determines whether Mexico would gain by producing and exporting oil and importing soybeans?
A. more than 4.91 bushels of soybeans per barrel of oil.
B. more than 0.64 barrel of oil.
C. 1.57 bushels of soybeans per barrel of oil.
D. any quantity of soybeans.
E. more than 3 bushels of soybeans per barrel of oil.
Answer:
The correct answer is E. Mexico would not gain by producing and exporting oil and importing soybeans unless it received more than 3 bushels of soybeans per barrel of oil.
To determine whether Mexico would gain by producing and exporting oil and importing soybeans, we need to compare the opportunity costs of producing each good domestically. The opportunity cost is the value of the next best alternative that must be given up.
Let's assume that Mexico can produce both oil and soybeans. If Mexico can produce more than 3 bushels of soybeans per barrel of oil, it would be more beneficial for Mexico to specialize in producing and exporting oil, while importing soybeans.
If Mexico receives exactly 3 bushels of soybeans per barrel of oil, it would be indifferent between producing oil and soybeans domestically, as the opportunity cost is equal for both goods.
However, if Mexico receives less than 3 bushels of soybeans per barrel of oil, it would be more advantageous for Mexico to produce and export soybeans instead of oil.
Therefore, in order for Mexico to gain by producing and exporting oil and importing soybeans, it would need to receive more than 3 bushels of soybeans per barrel of oil. Hence, the correct answer is E.