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gregori [183]
3 years ago
13

If the actual terms of trade are 1 belt for 1.5 swords and 70 belts are traded, how many belts will Morocco gain compared to the

"without trade" numbers?

Business
1 answer:
motikmotik3 years ago
6 0

Answer:

If Morocco produces 120 belts and exports 70 belts:

  • it will receive 105 swords (= 70 x 1.5)
  • it will consume 50 belts (its domestic consumption of belts will decrease by 10)

Explanation:

Without trade, Morocco will produce 60 swords and 60 belts and consume them all, but if it engages in trade, it will produce 120 belts.

  • Morocco's opportunity cost of producing one belt = 60 / 60 = <u>1</u>
  • Morocco's opportunity cost of producing one sword = 60 / 60 = 1

  • Estonia's opportunity cost of producing one belt = 100 / 40 = 2.5
  • Estonia's opportunity cost of producing one sword = 40 / 100 = <u>0.25</u>

If Morocco produces 120 belts and keeps current consumption level:

  • it consumes 60 belts
  • it can trade 40 belts for 60 swords
  • it will have a 20 belt surplus production

If Morocco produces 120 belts and exports 70 belts:

  • it will receive 105 swords (= 70 x 1.5)
  • it will consume 50 belts

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