Trade between two countries can benefit both countries if
A) each country exports that good in which it has a comparative advantage.
B) each country enjoys superior terms of trade.
C) each country has a more elastic demand for the imported goods.
D) each country has a more elastic supply for the exported goods.
E) each country produces a wide range of goods for export.

Question

Quizplus · Accepted Answer

When each country specializes in producing and exporting the goods in which it has a comparative advantage, there is a potential for both countries to benefit from trade. This leads to a more efficient allocation of resources, higher productivity, and increased welfare gains. In contrast, options B, C, D, and E are not necessary conditions for mutually beneficial trade. For example, a country may enjoy superior terms of trade by exporting scarce natural resources, but this may not necessarily lead to gains for the other trading partner. Similarly, the elasticity of demand or supply for traded goods may affect the distribution of gains from trade but does not determine the overall benefit. Finally, the range of goods produced for export is irrelevant if a country has no comparative advantage in those goods.

Trade Between Two Countries Can Benefit Both Countries If