Suppose the World Economy Is Composed of Just Two Countries

Multiple Choice

Suppose the world economy is composed of just two countries: Italy and Greece. Each can produce steel or chemicals, but at different levels of economic efficiency. The production possibilities curves for the two countries are shown in the graphs. If Italy and Greece open up trade with each other, which of the following terms of trade is mutually beneficial?

A) 1 ton of chemicals = 1 ton of steel
B) 2 tons of chemicals = 1 ton of steel
C) 5 tons of chemicals = 2 tons of steel
D) 9 tons of chemicals = 5 tons of steel