Assume Ireland can produce 4 units of good X or 2 units of good Y.France can produce 3 units of good X or 9 units of good Y.What would be the terms of trade between Ireland and France for 1 unit of good X?
A)Between 1/2 and 3 units of Y.
B)Between 1/3 and 1/2 units of Y.
C)Between 4 and 9 units of Y.
D)Between 1/3 and 3 units of Y.

Question

Quizplus · Accepted Answer

The terms of trade for 1 unit of good X should be between the opportunity costs of producing good X in both countries. For Ireland, the opportunity cost of producing 1 unit of good X is 1/2 unit of good Y (2 units of Y for 4 units of X). For France, the opportunity cost of producing 1 unit of good X is 3 units of Y (9 units of Y for 3 units of X). Therefore, the terms of trade should be between 1/2 and 3 units of Y.

Assume Ireland Can Produce 4 Units of Good X or 2