Assume the two countries specialize based on their comparative advantage. If the two countries engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial?

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03-06-2021
Business

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Assume the two countries specialize based on their comparative advantage. If the two countries engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial?

Sagot :

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Munali Munali · Answer 1 · 2021-06-07T01:56:25-04:00

Answer:

None of the country have comparative advantage in producing food.

Explanation:

Marland and Teckana are the two countries who produces food and clothing. Marland can produce 20 units of food or 120 units of clothing while Teckana can produce 20 units of food or 80 units of clothing. Since both countries can produce same units of food neither country has comparative advantage in producing food. If the countries engage in exchange for 1 unit of food for 5 units of clothing Teckana country can benefit from the trade because it will get 100 units of clothing for 20 units of food.

Assume the two countries specialize based on their comparative advantage. If the two countries engage in trade and one unit of food is exchanged for 5 units of clothing, will these terms of trade be mutually beneficial?

Sagot :

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