Question

Suppose that maldonia and sylvania agree to trade. each country focuses its resources on producing only the good in which it has a comparative advantage. the countries decide to exchange 12 million pounds of potatoes for 12 million pounds of coffee. this ratio of goods is known as the price of trade between maldonia and sylvania.

Answer 1

This type of ration is known as the terms of trade between Maldonia and Sylvania. Terms of trade, simply put, is the ratio of what a country agrees to export in reference to a good they will be importing from another country. In this case, the terms of trade are not monetary but an equal trade of two separate goods between two different countries.