Comparative Advantage and Terms of Trade
Country A can produce a maximum of 10 units of wheat or 5 units of cloth, and Country B can produce a maximum of 8 units of wheat or 8 units of cloth. If both countries specialize based on their comparative advantage, which of the following terms of trade would be mutually beneficial?
A
2 units of wheat for 1 unit of cloth
B
1 unit of wheat for 1 unit of cloth
C
1 unit of wheat for 0.5 units of cloth
D
1 unit of wheat for 0.8 units of cloth
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