Please answer this for me. United StatesCanadaCornCorn606060PeanutsPeanutsThe United States and Canada have the productionpossibilities curves shown above. It is determinedthat the United States has the comparativeadvantage in peanuts. Will both nations gain fromtrade if the terms of trade that are offered are 1Peanut= 3 Corn? Why or why not? Show your work.20

Both the countries stand to gain from particular terms of trade when the relative trade price sits between the domestic relative prices of both the countries. The US is able to produce 60 units of peanuts or 60 units of corn, The domestic relative price of peanuts in the US = Corn / Peanuts The domestic relative price of peanuts in the US = 60 Corn / 60 Peanuts The domestic relative price of peanuts in the US = 60 / 60 The domestic relative price of peanuts in the US = 1 The domestic relative price of peanuts in the US is 1 unit of corn. Canada is able to produce 20 units of peanuts or 60 units of corn, The domestic relative price of peanuts in Canada = Corn / Peanuts The domestic relative price of peanuts in Canada = 60 Corn / 20 Peanuts The domestic relative price of peanuts in Canada = 60 / 20 The domestic relative price of peanuts in Canada = 3 The domestic relative price of peanuts in Canada is 3 units of corn. And the terms of trade are 1 peanut is offered for 3 units of corn. We can see that the domestic relative price of peanuts in Canada and the terms of trade price is the same, thus these particular terms of trade would not benefit Canada. Canada would not gain from trade if the trade is done at the terms of trade of 1 peanut = 3 units of corn. We can see that the domestic relative price of peanuts in the US is less than the terms of trade relative price, thus these particular terms of trade would benefit the US. The US would gain from trade if the trade is done at the terms of trade of 1 peanut = 3 units of corn. This is because the US is able to get more units of corn against each peanut it sells at relative trade price (1 peanut for 3 corn) compared to relative domestic price (1 peanut for 1 corn).