To ensure mutually beneficial trade,the terms of trade between two countries should always
A)Allow each country to develop its area of absolute advantage.
B)Be between their respective opportunity costs in production.
C)Be set to favor the larger country because its output will be greater.
D)Be set to favor the country with the least comparative advantage in a good to ensure the greatest gains from specialization.

Question

Quizplus · Accepted Answer

The terms of trade between two countries should be based on their respective opportunity costs in production. This means that each country will specialize in producing the goods it can produce at a lower opportunity cost and trade with the other country for goods it cannot produce efficiently. This will lead to gains from trade for both countries and result in mutually beneficial trade. Allowing each country to develop its area of absolute advantage, favoring the larger country, or favoring the country with the least comparative advantage would not necessarily result in mutually beneficial trade.

To Ensure Mutually Beneficial Trade,the Terms of Trade Between Two