Trade Unit
Relative prices after two countries trade?
Suppose the relative price of computers and mango in Japan is 3 computers per unit of mango. The relative price of computers and mango in Tha...
Trade Unit
Relative prices after two countries trade?
Suppose the relative price of computers and mango in Japan is 3 computers per unit of mango. The relative price of computers and mango in Thailand is 1 computer per unit of mango. Assume two countries trade without government restrictions, transportation costs are negligible, and markets are competitive. The likely terms of trade will fall in the range either side of
A-3 computers per unit of mango.
B-2 computers per unit of mango
C-1/4 computer per unit of mango.
D-1 computer per unit of mango.
"B" should be right. Though theoretically if both economies are the same size - then "B" is right, because price will be averaged, but taking into account that economy of Japan much bigger and economy of Thailand smaller price will become closer to Japanese (so might be "A" if supply from Thailand is limited.
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US $31.57
