Figure 34-7

In Figure 34-7, CF has the same slope as BG. AB and CD are the production possibilities of Pestoland and Pastaland, respectively. If both countries are given the opportunity to trade at prices indicated by CF,

Question

Figure 34-7

In Figure 34-7, CF has the same slope as BG. AB and CD are the production possibilities of Pestoland and Pastaland, respectively. If both countries are given the opportunity to trade at prices indicated by CF,

Quizplus · Accepted Answer

Since CF has the same slope as BG, the terms of trade are mutually beneficial for both countries. Both countries can specialize in the production of goods in which they have a comparative advantage and then trade with each other, resulting in increased welfare for both countries. Therefore, both countries will agree to trade.

Figure 34-7 In Figure 34-7, CF Has the Same Slope as BG