united states car 50 wheat 100 japan: wheat 50 car 40 if the term of trade...
united states car 50 wheat 100
japan: wheat 50 car 40
if the term of trade are 1 car will be exchanged for 1.75 tons of wheat would both countries benefit from trade ? why or why not? what if the term of trade are 1 car will be exchanged for 2.5 tons of wheat would both countries benefit from trade ?
Homework Answers
Opportunity cost of 1 car for US = 2 tons of wheat
Opportunity cost of 1 car for Japan = 50/40 = 1.25
Yes,both countries will benefit from trade if term of trade is 1 car will be exchanged for 1.75 tons of wheat . This is because price of 1 car lies between the opportunity cost of producing 1 car for US and than that of Japan.
No, both countries won't benefit from trade if 2 car will be exchanged for 2.5 tons of wheat. This is because opportunity cost of 1 car doesn't go beyond 2 for any country.
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united states car 50 wheat 100
japan: wheat 50 car 40
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