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Chapter 35: International Trade
Discussion: Terms of Trade
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 anqxl |
Terms of Trade
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? |
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kevinchiu kevinchiu |
RE: Terms of Trade
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? |