The terms of trade between two countries should always:

Question

Quizplus · Accepted Answer

The terms of trade between two countries should be such that they are mutually beneficial and based on their respective opportunity costs in production. This means that each country should specialize in producing goods that they are relatively efficient at producing compared to the other country, and trade with each other based on those relative efficiencies. This leads to a more efficient allocation of resources and higher overall economic welfare for both countries. Choosing option A or D, which either favor one country over the other or promote specialization in a single area, may lead to unfair trade practices and hinder the development of overall economic growth. Option B does not make sense as the larger country is not inherently more efficient or productive than the smaller country.

The Terms of Trade Between Two Countries Should Always