If two countries with diminishing returns and different marginal rates of substitution between two products were to engage in trade,then
A) the marginal rates of substitution of both would become equal.
B) the shapes of their respective production possibility frontiers would change.
C) the larger of the two countries would dominate their trade.
D) the country with relatively elastic supplies would export more.
E) the opportunity costs for the smaller country would increase.

Question

Quizplus · Accepted Answer

When two countries engage in trade, they will trade until their marginal rates of substitution (MRS) become equal, as this indicates that they have reached a point where they cannot improve their welfare further through additional trade.

If Two Countries with Diminishing Returns and Different Marginal Rates