The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea.Table 20.3

-The limits of the terms of trade are determined by the:

Question

The following table shows the units of calculators and rice produced by a laborer in a day in Japan and Korea.Table 20.3
 
-The limits of the terms of trade are determined by the:

Quizplus · Accepted Answer

Limits of terms of trade are determined by opportunity costs in each country. In other words, the relative cost of producing one good in terms of forgoing the production of the other good. Opportunity costs determine the production possibility frontier, which in turn determines the limits of terms of trade. Other factors such as distribution costs, stock of foreign exchange, and currency exchange rates may affect the terms of trade, but they are not the primary determinants of the limits of terms of trade.

The Following Table Shows the Units of Calculators and Rice