Consider two countries that can produce wheat and coffee.The gains from trade when the two countries have different opportunity costs are realized when

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The gains from trade are realized when resources are reallocated within the two countries such that each specializes in the production of the good in which it has a comparative advantage. This allows both countries to produce their respective goods at a lower opportunity cost and trade with each other for mutual benefit. Choice A is incorrect because the production possibility boundaries do not need to shift inward for gains from trade to be realized. Choice B is incorrect because if both countries continue to produce the same quantities of wheat and coffee, there will not be any trade. Choice C is incorrect because absolute advantage does not necessarily lead to gains from trade. Choice D is incorrect because absolute advantage does not necessarily lead to gains from trade and it does not ensure that each country is producing at the lowest opportunity cost.

Consider Two Countries That Can Produce Wheat and Coffee