When there is no trade between Econia and Macroland, the price of a hairbrush is $6 in Econia and $8 in Macroland, while the price of a pair of socks is $5 in Econia and $4 in Macroland. If trade opened up between the two countries, which of these would be the terms of trade that might result, assuming that there are no transportation costs?

Question

Quizplus · Accepted Answer

The terms of trade would likely settle between the pre-trade prices in both countries. For hairbrushes, between $6 (Econia) and $8 (Macroland), and for socks, between $5 (Econia) and $4 (Macroland). Option B reflects a compromise price for both items, making it a plausible outcome of trade.

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