Suppose Canada can produce either 300 tons of paper or 200 HDTVs,and India can produce either 200 tons of paper or 100 HDTVs.The terms of trade between the two countries will lie between
A)1/2 and 2/3 of an HDTV per ton of paper.
B)1/3 and 2/3 of an HDTV per ton of paper.
C)1/3 and 1/2 of an HDTV per ton of paper.
D)1/2 and 1 HDTV per ton of paper.

Question

Quizplus · Accepted Answer

Canada can produce 300 tons of paper or 200 HDTVs, so the opportunity cost of producing one HDTV is 300/200 = 1.5 tons of paper. India can produce 200 tons of paper or 100 HDTVs, so the opportunity cost of producing one HDTV is 200/100 = 2 tons of paper. Therefore, the terms of trade between the two countries will lie between 1.5 and 2 tons of paper per HDTV.

Suppose Canada Can Produce Either 300 Tons of Paper or 200