Explain how changes in terms of trade affect the welfare of nations engaged in international trade?

Question

Could someone please answer my question...thanks!!!

Answer 1

Well, if it costs you $25 to pump a barrel of oil, as long as you sell it for more than $25/barrel you make a profit and so should be willing to sell.

But clearly, you'd prefer to sell it for $100/barrel rather than $26 and I as the buyer would rather pay $26 rather than $100.

From an economics perspective, we would both be better off making the trade at either price, but you'd benefit a great deal more at the higher price, and I at the lower.