When There Is No Trade Between Econia and Macroland, the Price

question 188

Multiple Choice

When there is no trade between Econia and Macroland, the price of a hairbrush is $6 in Econia and $8 in Macroland, while the price of a pair of socks is $5 in Econia and $4 in Macroland. If trade opened up between the two countries, which of these would be the terms of trade that might result, assuming that there are no transportation costs?

• A) The price of a hairbrush would be $6 and the price of socks would be $5 in both countries.
• B) The price of a hairbrush would be $7 and the price of socks would be $4.50 in both countries.
• C) The price of a hairbrush would be $8 and the price of socks would be $5 in both countries.
• D) The price of a hairbrush would be $8 and the price of socks would be $4 in both countries.

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Definitions:

Units Sold

The quantity of product units sold by a company during a particular period.

Income Statement

An accounting statement that provides a summary of a company's revenues, expenses, and net income over a specific period.

Expenses

The monetary costs incurred in the process of generating revenues, including fixed, variable, and semi-variable expenses.

Contribution Margin Ratio

A financial metric expressing the percentage of each sales dollar remaining after variable costs are subtracted.