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Coffee. Coffee. BRAZIL. 1000. 1000. MEXICO. Finding the TERMS OF TRADE. 1000. 500. Wheat. Wheat. Opportunity Cost Table. BRAZIL MEXICO 1 Coffee = ____ Wheat 1 Coffee = _____ Wheat

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  1. Coffee Coffee BRAZIL 1000 1000 MEXICO Finding the TERMS OF TRADE 1000 500 Wheat Wheat Opportunity Cost Table BRAZIL MEXICO 1 Coffee = ____ Wheat 1 Coffee = _____ Wheat 1 Wheat = ____ Coffee 1 Wheat = ____ Coffee (gain) (cost) 1/2 1 1 2 Mexico needs more than ½ wheat per coffee Brazil must give less than 1 wheat per coffee This makes both countries Produce to the right of their PPF graph Terms of Trade = 1 >X > ½ wheat per coffee

  2. TRADE EXAMPLE BRAZIL MEXICO Coffee 1000 1000 .(300, 600) after trade Coffee .(700, 400) * (500,500) after trade * (250,500) 500 Wheat 1000 Wheat Trade Example at a .75 ratio BRAZIL MEXICO 400 Coffee 0 Coffee 1,000 Wheat 1,000 Coffee 0 Wheat 300 Wheat Mexico needs more than ½ wheat per coffee Brazil must give less than 1 wheat per coffee Terms of Trade = 1 > X > ½ wheat per coffee

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