If the terms of trade is between each country's opportunity costs:
A) there is no basis for trade between the two countries.
B) both countries would gain from trade.
C) only one country would gain from trade.
D) one country would gain from trade, and one country would lose from trade.
E) All of the above

Question

Quizplus · Accepted Answer

When the terms of trade (the rate at which one good is exchanged for another) fall between each country's opportunity costs, both countries can benefit from trade. This is because each country can specialize in producing the good for which it has a comparative advantage and then trade for the other good, leading to gains for both parties.

If the Terms of Trade Is Between Each Country's Opportunity