Given the information in Question #12 above, suppose that Germany is a much larger Country in terms of production and income than is the United Kingdom. In this situation, Other things equal, when the countries engage in trade, the posttrade price ratio (terms of Trade) would tend to settle __________, and __________ would therefore tend to have Relatively large gains from trade.
A) toward a value of 1 cloth:2 steel; the United Kingdom
B) toward a value of 1 cloth:2 steel; Germany
C) toward a value of 1 cloth:1.5 steel; the United Kingdom
D) toward a value of 1 cloth:1.5 steel; Germany

Question

Quizplus · Accepted Answer

When a larger country like Germany trades with a smaller country like the United Kingdom, the terms of trade tend to favor the smaller country, allowing it to gain relatively more from trade. Thus, the posttrade price ratio would settle closer to the smaller country's pretrade price ratio, benefiting the United Kingdom.

Given the Information in Question #12 Above, Suppose That Germany