Refer to the diagram below in which line AB is Canadian production possibility 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 is determined by the market exchange rate between two countries for their goods. In the diagram, the slope of line AC represents the rate at which Canada can trade beef for cheese in the international market. Therefore, the absolute value of the slope of line AC represents the terms of trade between beef and cheese for Canada.

Refer to the Diagram Below in Which Line AB Is