Multiple Choice
Scenario: Hawaii and South Carolina are trading partners. Hawaii has an absolute advantage in the production of both coffee and tea. The opportunity cost of producing 1 pound of tea in Hawaii is 2 pounds of coffee, and the opportunity cost of producing 1 pound of tea in South Carolina is 1/3 pound of coffee.
-Refer to the scenario above.Which of the following statements is true of the terms of trade of tea for coffee?
A) The terms of trade will lie somewhere below 1/3.
B) The terms of trade will lie somewhere above 2.
C) The terms of trade will lie between 1/3 and 2.
D) The terms of trade will equal 0.
Correct Answer:
Verified
Correct Answer:
Verified
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