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Which terms of trade benefits both countries?
Ā 
A) each country exports that good in which it has a comparative advantage.
B) each country enjoys superior terms of trade.
C) each country has a more elastic demand for the imported goods.
D) each country has a more elastic supply for the exported goods.
E) each country produces a wide range of goods for export.

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Alice Sejake
Alice SejakeLv10
28 Sep 2020

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Related questions

Discuss and explain the difference between the two.

The principle upon which Adam Smith first claimed that free trade benefits all countries. It holds that a country benefits from trade when it produces a particular good at a lower cost (in terms of labor input) than it costs to produce the good in any other country. By specializing the in the production and export of this good and importing goods whose production costs are higher than in other countries, the country can consume more of both goods. In trade theories, this principle was later replaced by the principle of comparative advantages.

Comparative Advantage is first fully stated by David Ricardo in the early nineteenth century, this concept holds that a country has a comparative advantage in a good if it can produce that good more cheaply than it can produce other goods. By specializing in the production of goods in which it holds a comparative advantage and importing the other goods, the country can consume more of all goods. In contrast to Adam Smith, therefore, this principle states that a country need not have an absolute advantage in any good to benefit from trade. The principle provides a powerful justification for liberal international trade by asserting that all countries benefit from such trade.

The fundamental force driving international trade is comparative:

A. Advantage: a country exports those goods that have high prices

B. Abundance: the country that produces more than it needs exports the good

C. Advantage: the country with the lower opportunity cost of production exports the good

D. Cost: a country trades with other countries that produce cheaper goods

In-country A, one unit of labour can produce 40 toys or 10 computers. In-country B one unit of labour can 200 toys or 20 computers.

(a)Explain which country has an absolute advantage in producing toys.

(b)Explain whether the country should export toys or computers

(c)Suppose Country A trades with Country B at the exchange ratio of 8 toys to a computer. Calculate the gain of Country A per 100 units of exports.

(d)State the range of terms of trade that mutually benefits both countries.

(e)If the cost of trade per unit of computer traded is X toys, find the minimum value of X at which trade will not be mutually beneficial.

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