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

Question

Quizplus · Accepted Answer

The gains from trade are realized when each country specializes in the production of the good in which it has a comparative advantage. This means that each country should produce the good that it can produce at a lower opportunity cost and then trade that good for the other good with the other country. This allows both countries to consume more of both goods than they could have produced domestically without trade. The other choices do not explain the concept of comparative advantage and do not accurately describe the gains from trade.

Consider Two Countries That Can Produce Wheat and Coffee