If the International Terms of Trade Settle at a Level

question 62

Multiple Choice

If the international terms of trade settle at a level that is between each country's opportunity cost:

• A) there is no basis for gainful trade for either country.
• B) both countries gain from trade.
• C) only one country gains from trade.
• D) one country gains and the other country loses from trade.

---

Definitions:

Perfectly Competitive

A market structure characterized by a large number of buyers and sellers, all selling identical products, with no single entity able to influence the market price.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit, often leading to market failure if not corrected by government intervention.

Marginal Cost

The boost in expenditure due to producing an additional unit of a product or service.

Coase Theorem

A principle that suggests that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.