When there is no trade between Econostan and Macroland, the price of orange juice is $1 per cup in Econostan and $0.50 in Macroland, while the price of shoes is $40 per pair in Econostan and $45 per pair in Macroland at current exchange rates. Assuming there is no change in exchange rates, which result could be expected regarding terms of trade if trade opened up between the two countries?

Question

Quizplus · Accepted Answer

When trade opens, Econostan will import cheaper orange juice from Macroland, causing the price of juice to fall in Econostan. Conversely, Econostan will export shoes to Macroland, where they are more expensive, causing the price of shoes to rise in Econostan.

When There Is No Trade Between Econostan and Macroland, the Price