Figure 3.1China - US Trade Possibilities

-Considering Figure 3.1,what are the terms of trade represented?
A) The terms of trade are 1½ aircraft per textile.
B) The terms of trade are 1½ textiles per aircraft.
C) The terms of trade are 1 textile per aircraft.
D) The terms of trade are 2/3 textile per aircraft.

Question

Figure 3.1China - US Trade Possibilities
 
-Considering Figure 3.1,what are the terms of trade represented?
A) The terms of trade are 1½ aircraft per textile. 
B) The terms of trade are 1½ textiles per aircraft. 
C) The terms of trade are 1 textile per aircraft. 
D) The terms of trade are 2/3 textile per aircraft.

Quizplus · Accepted Answer

The figure shows that China can produce 1 aircraft for every 3/2 textiles it gives up, while the US can produce 1 aircraft for every 1 textile it gives up. The terms of trade are determined by comparing the opportunity costs of each country, and in this case, the US has a lower opportunity cost in producing textiles than China. Therefore, the terms of trade are 1½ textiles per aircraft, represented by the slope of the production possibility frontier of each country.