Exhibit 34-1 Refer to Exhibit 34-1. Considering the data, which of the following terms of trade would both countries agree to?

Question

Exhibit 34-1  Refer to Exhibit 34-1. Considering the data, which of the following terms of trade would both countries agree to?

Quizplus · Accepted Answer

Both countries will agree to a term of trade where they can obtain more units of the other's good with one unit of their own good. In this case, Country A can obtain 1.5 units of Y for one unit of X, which is better than producing the Y domestically. Similarly, Country B can obtain one unit of X for 1.5 units of Y, which is better than producing the X domestically. Therefore, both countries would agree to a term of trade where 1 unit of X is exchanged for 1.5 units of Y.