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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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BuyFindarrow_forward

Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Suppose the United States can produce 120 units of X at an opportunity cost of 20 units of Y and the United Kingdom can produce 40 units of X at an opportunity cost of 80 units of Y. Identify favorable terms of trade for the two countries.

To determine

The favorable terms of trade between  Country U and Country UK

Explanation

Country U can produce either 120 units of X or 20 units of Y at the same cost, and Country UK can produce either 40 units of X or 80 units of Y at the same cost. From this, find out the opportunity cost of producing 1 unit of X in each country as 1X=16 Y or 1Y=6X in Country U and 1X=2Y in Country UK. The favorable terms of trade between Country U and Country UK may be in-between these two points

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