Terms of Trade and the Gains from Trade

Watch it explained

How it worksHow does a trading ratio between the two opportunity costs make both sides better off?
Worked exampleFind a workable terms of trade when one country gives up 3 fish per lumber and the other gives up 1.
How it worksWalk me through how specialization pushes consumption past a country's own frontier.
Common mistakeWhy isn't trade a deal where one side has to lose for the other to win?

Check yourself

Your turn1 of 2

One country's opportunity cost of one unit of lumber is 2 fish; the other country's is 9 fish. Using the midpoint of the workable range, what price of lumber, in fish, would both countries accept as a terms of trade?

End of topic.

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