Counties a and B Currently Consume 400 Units of Food

question 51

Multiple Choice

Counties A and B currently consume 400 units of food and 400 units of textiles each and currently do not trade with one another.The citizens of country A have to give up one unit of food to gain two units of textiles,while the citizens of country B have to give up one unit of textiles to gain two units of food.Their production possibilities curves are shown. Under the theory of comparative advantage,if free trade is allowed,the market clearing price (or exchange rate if you will) between food and textiles will be

• A)one unit of food for one unit of textiles.
• B)somewhere between one unit of food for two units of textiles and two units of food for one unit of textiles.
• C)one unit of food for two units of textiles.
• D)two units of food for one unit of textiles.

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Definitions:

Marginal Tax Rates

The rate at which an additional dollar of income is taxed, demonstrating the progressive nature of income taxation.

Average Tax Rates

The ratio of the total amount of taxes paid to the total income, indicating the percentage of income that goes towards taxes.

Regressive Tax

A tax system that takes a smaller percentage of income from individuals as their income increases, often considered less fair to lower-income earners.

Payroll Taxes

Financial obligations required from both employers and employees, pegged to a fraction of the payroll expenses incurred by employers.