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

question 179

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 $4 in both countries.
• D) The price of a hairbrush would be $8, and the price of socks would be $5 in both countries.

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Definitions:

Profit Margin

A financial metric that measures the amount of net income generated as a percentage of revenue, indicating how effectively a company can convert sales into net profits.

Dividend Payout Ratio

The percentage of earnings paid to shareholders in dividends, indicating how much money a company returns to shareholders versus reinvesting in the business.

Financial Planning Models

Tools or software used for projecting future financial results and for strategic financial planning, often in the form of spreadsheets or specialized software.

Financial Relationships

Financial relationships refer to the connections between different financial variables, metrics, and performance indicators that help in analyzing and evaluating the financial health of an entity.