Question

Consider a scenario in which each person is an island. In this scenario, James and Kate engage in international trade with each other.

James is lactose intolerant and only produces cheese. Kate is caffeine intolerant and only produces coffee. Thus, both "countries" export all their production to the other. This month James produced 23
pounds of cheese and Kate 13
pounds of coffee. For simplicity, assume that they share a common currency (the US dollar) and that the price of a pound of coffee is $1, the same as a pound of cheese.

Who has a negative trade balance with the other country?

Answer 1

Katie has a negative trade balance of -$10.

Explanation:

James exports 23 pounds for $23 and Katie exports 13 pounds for $13.

Jamie $23 - $13 = $10

Katie $13 - $23 = -$10