Scenario: Norway and Sweden each produce cloudberries (CB) and salted cod (SC). Their production possibilities curves for these two goods are shown below.

Production Possibilities: Norway and Sweden (thousands of kilos)

Opportunity Costs: Norway and Sweden

-Refer to the scenario above.If the terms of trade are 1.5 kilos of cloudberries for a kilo of salted cod,the terms of trade are ________.

Question

Scenario: Norway and Sweden each produce cloudberries (CB) and salted cod (SC). Their production possibilities curves for these two goods are shown below.
  
Production Possibilities: Norway and Sweden (thousands of kilos)
  
Opportunity Costs: Norway and Sweden
 
-Refer to the scenario above.If the terms of trade are 1.5 kilos of cloudberries for a kilo of salted cod,the terms of trade are ________.

Quizplus · Accepted Answer

With a terms of trade of 1.5 kilos of cloudberries for a kilo of salted cod, both Norway and Sweden can benefit from trade. Norway has a comparative advantage in producing salted cod, as shown by its lower opportunity cost in terms of cloudberries. Sweden has a comparative advantage in producing cloudberries, as shown by its lower opportunity cost in terms of salted cod. By specializing in their respective areas of comparative advantage and trading with each other, both countries can consume more of both goods than they would be able to produce on their own. Therefore, the terms of trade are advantageous for both Norway and Sweden.

Scenario: Norway and Sweden Each Produce Cloudberries (CB) and Salted