Location: Chapter 35: International Trade

Discussion: Terms of TradeReported This is a featured thread

Category: Discussion Forum / General Discussion
Showing 2 posts
anqxl
anqxl
Terms of Trade
Apr 28 2008, 8:09 AM EDT | Post edited: Apr 28 2008, 8:09 AM EDT
How do you calculate terms of trade after you have the comparative costs? Do you find this valuable?    

kevinchiu
1. RE: Terms of Trade
Apr 28 2008, 8:53 AM EDT | Post edited: Apr 28 2008, 8:53 AM EDT
I think terms of trade is basically calculated through two countries coming upon agreement so that both countries benefit from trade, (i.e. minimize opportunity cost). For example, if US' opportunity cost, domestically, to make a cellphone is 3 pizzas and Mexico's opportunity cost to make a cellphone is 2 pizza, domestically, then they will agree on terms in which Mexico imports 2 < terms of agreement < 3 in order for the US to benefit from the trade. Other factors are generally included to decide whether the opportunity cost is closer to 2, better for the US, or closer to 3, better for Mexico. Do you find this valuable?    

Related Content

  (what's this?Related ContentThanks to keyword tags, links to related pages and threads are added to the bottom of your pages. Up to 15 links are shown, determined by matching tags and by how recently the content was updated; keeping the most current at the top. Share your feedback on Wetpaint Central.)
Week 6 Discussion Forum Question