Business, 03.07.2020 16:01 avahymowitz44

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
c) The price of a hairbrush would be $8 and the price of socks would be $5 in both
d) The price of a hairbrush would be $8 and the price of socks would be $4 in both countries countries rnuntries

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Answer from: kpgmfb

b) The price of a hairbrush would be $7 and the price of socks would be $4.50 in both

Explanation:

Given that:

When there is no trade between Econia and Macroland;

For Hairbrush

the price of a hairbrush is $6 in Econia

the price of a hairbrush is $8 in Macroland

For a Pair of Socks

the price of a pair of socks is $5 in Econia

the price of a pair of socks is $4 in Macroland

Now if rade opened up between the two countries; we are to determine from the given options; the terms of trade that might result, assuming that there are no transportation costs.

From the given data;

the price of the hairbrush is seen to be lesser in Econia than in Macroland; so it is best if Econia export the hair brush to Macroland since the price is lesser which will be of advantage to Macroland as they import the hairbrush ; Also Econia will benefit from this trade by increasing the price a little bit but not up to the price at which it is sold for at Macroland.

Now; The hairbrush is sold for $6 in Econia and $8 in Macroland.

It will be bet if Econia can sell the hairbrush at the rate of somewhere between $6-$8 ; let say $7 since it will be an added advantage for Econia because the price of selling the hairbrush will increase from $6 to $7 ; also, the price at which it is sold at Macroland will now have to reduce from $8 to 7.

Also;

The price of th pair of socks is lesser in Macroland (which is sold at the rate of $4 ) and the price of the pair of socks is sold at the rate of $5 in Econia.

So here ; Macroland will export the pair of socks to Econia while Econia import the pair of socks.

So; let say any price between $4 and $5 (i.e $4.50) for a pair of socks will be okay for both parties because Macroland will get a higher price if it exports socks and Econia will pay lower price by importing socks which is up to $5.

Therefore; from the above explanation, The best option that suits to be the answer is option b ; The price of a hairbrush would be $7 and the price of socks would be $4.50 in both

Answer from: Quest

They are enjoying the advantage of independence while running their own small business. they can go where they want when they want to, because they control the restaurant's hours. they can also make time for life emergencies, and set the hours to be when they do the best cooking.

Answer from: Quest

answer; ///decision making under risk;

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