Scenario: Hawaii and South Carolina Are Trading Partners

Multiple Choice

Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee, and the opportunity cost of producing 1 pound of tea in South Carolina is 1/3 pound of coffee.
-Refer to the scenario above.Which of the following statements is true?

A) If the exchange rate is closer to 1 pound of tea for 2 pounds of coffee, Hawaii gains more from trade than South Carolina does.
B) If the exchange rate is closer to 1 pound of tea for 1/3 pound of coffee, Hawaii gains more from trade than South Carolina does.
C) Hawaii will always gain more from trade than South Carolina does, irrespective of the trading price of tea.
D) South Carolina will always gain more from trade than Hawaii does, irrespective of the trading price of tea.