The terms of trade between any two countries for two goods cannot be between their respective opportunity costs if there are to be any gains in trade.

Question

Quizplus · Accepted Answer

The terms of trade can indeed be between the respective opportunity costs of two countries for two goods, and this is actually what enables both countries to gain from trade. If the terms of trade (the rate at which goods are exchanged) fall between the two countries' opportunity costs, each country can specialize in the production of the good for which it has a comparative advantage and trade for the other good at a rate better than its own opportunity cost, thereby realizing gains from trade.

The Terms of Trade Between Any Two Countries for Two