Refer to the given diagram, in which line AB is the U.S. production possibilities curve and AC is its trading possibilities curve. The international exchange ratio between beef and cheese (terms of
Trade)

Question

Quizplus · Accepted Answer

The terms of trade refer to the rate at which a country exchanges one commodity for another with another country. In the given diagram, the trading possibilities curve AC represents the possible combinations of beef and cheese that the U.S. can trade with other countries. The absolute value of the slope of AC represents the opportunity cost of producing one unit of beef in terms of cheese that the U.S. faces when it decides to trade. This opportunity cost is equal to the international exchange ratio between beef and cheese, hence the correct answer is B.

Refer to the Given Diagram, in Which Line AB Is