The Table Below Shows Units of Wheat and Cloth Produced

question 21

Multiple Choice

The table below shows units of wheat and cloth produced by each worker per day in both the countries. Table 20.1
- Refer to Table 20.1.Assume that the U.S.has only two workers and the terms of trade are 2 bushels of wheat per rack of clothing.What would be the gains from trade for the U.S.if it is producing according to its comparative advantage?

• A)2 racks of clothing
• B)2.5 racks of clothing
• C)1.5 racks of clothing
• D)3 racks of clothing
• E)1 rack of clothing

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Definitions:

Price-Searcher Firm

A company that operates in a market with differentiated products and has some control over the price of its product because it faces a downward-sloping demand curve.

Profit Maximization

is the process or strategy by which a firm adjusts its production and sale levels to achieve the highest possible profit.

Price Takers

Firms or individuals who accept the market price as given and have no influence to change it.

Product Variety

The range of different goods or services offered by a company or available in a market.