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Question: In the computers and shirts example from the chapter, the United States traded one computer to Mexico in exchange for three shirts. This is not just an arbitrary ratio of shirts to computers, however. Let's explore the terms of trade a little bit more.

a. Why is trading away a computer for three shirts a good trade for the United States? Why is it also a good deal for Mexico?

b. What if, instead, the agreed-upon terms of trade were one computer for eight shirts. Would this trade still benefit both the United States and Mexico?

c. What is the maximum (and minimum) number of shirts that a computer can trade for if the United States and Mexico are both to benefit from the trade?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M92651640

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