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only 3 hats. DCC: Rayland
¼ B= 1 H DCC: Artland
½ B= 1 H Terms of Trade
1/3 B = 1 H (c) If the terms of trade are 5 hats for 1 bicycle, would trade
be advantageous for each of the following?
(i) Artland Answer to 2. (c) (i): Yes, 5 hats is better than 2 hats they are getting domestically.
(ii) RaylandAnswer to 2. (c) (ii): No, Rayland is going to export hats so opportunity cost
is ¼ bicycle. So 1/5 of a bicycle would not benefit them.
is (d) If productivity in Artland triples, which country has the comparative advantage in the
production of hats?
Answer to 2. (d): 300 bicycles would become 900 and 600 hats would become 1,800, so the
DCC would still be 1 bicycle = 2 hats, same as before. Rayland still has a C.A. in hats. Output v . Input
Rabbit 1 G = 3 B
1/3 G=1B Rabbit Wabbit Rabbit Wabbit 1 G = 2 B
1/2 G=1B Terms of Trade: 1G = 2.5 B Product Market [outputs]
Country Guns Butter
Rabbit 40 units 120 units
20 units 40 units What country has an...
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