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

Econostan has relatively expensive orange juice and cheaper shoes compared to Macroland. If trade opens, Econostan would likely import orange juice, reducing its price, and export shoes, increasing their price due to higher demand.

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