Figure: The Home and World Market (Figure: The Home and World Markets) The termsoftrade gain is
_______, and the deadweight loss is _____.
A)$120; $160
B)$160; $160
C)$160; $120
D)$120; $120

Question

Figure: The Home and World Market  (Figure: The Home and World Markets) The terms­of­trade gain is
_______, and the deadweight loss is _____.
A)$120; $160 
B)$160; $160 
C)$160; $120 
D)$120; $120

Quizplus · Accepted Answer

The terms-of-trade gain is the difference between the world price and the home country's pre-trade domestic price, which is $160 ($400-$240). The deadweight loss is the area of the triangle between the supply and demand curves in the absence of trade but outside of the new equilibrium price, which is $120. Therefore, the correct answer is C.

Figure: the Home and World Market (Figure: the Home