(Figure: The Home and World Markets) The terms-of-trade gain is _____, and the deadweight loss is _____.

Question

Quizplus · Accepted Answer

The terms-of-trade gain can be found by calculating the difference between the domestic price line and the world price line when the country specializes in producing the good of comparative advantage and trades in the world market. In this case, the terms-of-trade gain is $160 per unit. The deadweight loss can be found by calculating the triangle between the domestic price line and the supply and demand curves before the country trades in the world market. In this case, the deadweight loss is $120 per unit. Therefore, the correct answer is C, with a terms-of-trade gain of $160 and a deadweight loss of $120.

(Figure: the Home and World Markets) the Terms-Of-Trade Gain Is