The maximum amount of food and cloth that two countries and can produce using all of the factors of production in their respective countries with the best available technology is given below in the table :
| Food | 500 | 1200 |
| Cloth | 700 | 800 |
Suppose and agree to a terms of trade ratio of (i.e., 1 unit of food to be exchanged for 1 unit of cloth), then the specialization and trade pattern would be as follows
Tap an option to check your answer.
Checking your account…
The maximum amount of food and cloth that two countries A and B can produce using all of the factors of production in their respective countries with the best available technology is given below in the table: | A | B | Food | 500 | 1200 | Cloth | 700 | 800 | Suppose A and B agree to a terms of trade ratio of 1: 1 (i.e., 1 unit of food to be exchanged for 1 unit of cloth), then the specialization and trade pattern would be as follows (A) A will specialize in food and export food, and import cloth from B (B) A will specialize in cloth, and export cloth and import food from B (C) A and B will not trade (D) A has no comparative advantage and will import food and cloth from B
Theories of international trade has come up 151 times in 6 exams since 2006.
This question is on Absolute and comparative advantage, part of Theories of international trade in International Economics.
Why countries trade: producing more cheaply in absolute terms, or at lower opportunity cost.
TestStop has 42 past-paper questions on this subtopic; the nearest in year are below.
Question from the JNU SIS 2012 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.