The Following Figure Depicts Four Different Scenarios in Which the Blue

question 13

Multiple Choice

The following figure depicts four different scenarios in which the blue line represents California's production possibilities curve (PPC) and the red line represents Texas' PPC. These two states trade wine and cloth.

-Refer to the figure above.In what scenario would the terms of trade of cloth for wine be between 1 and 1.25?

• A) (1)
• B) (2)
• C) (3)
• D) (4)

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Definitions:

Free Trade

An economic policy of not discriminating against imports from and exports to foreign jurisdictions, allowing goods and services to move freely across borders.

Trade Barriers

Measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.

Specialization

Refers to the process where individuals, businesses, or countries focus on producing a narrow range of goods or services, improving efficiency and productivity.

Production Possibility Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources), representing the trade-off between different choices.