Nation Alpha has a comparative advantage in product X, and nation Beta has a comparative advantage in product Y. Trade in the two products will only benefit the two nations if

Question

Quizplus · Accepted Answer

For trade to benefit both nations, the prices charged for products X and Y in each country must reflect their respective domestic opportunity costs. This means that the nations should specialize in producing the product in which they have a comparative advantage and then trade with each other. This will result in lower prices and increased overall output, leading to a mutually beneficial outcome. The other choices, such as a fixed exchange ratio or excess capacity, do not necessarily lead to benefits from trade.

Nation Alpha Has a Comparative Advantage in Product X, and Nation