The terms of trade between any two countries for two goods must lie between their respective opportunity costs if both countries are to gain from trade.

Question

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The terms of trade determine the rate at which one good is exchanged for another between two countries. For both countries to benefit from trade, the terms of trade must be between their respective opportunity costs of producing those goods. This ensures that each country can obtain the goods more cheaply through trade than by producing them domestically, leading to mutual gains from trade.

The Terms of Trade Between Any Two Countries for Two