The terms of trade between any two countries for two goods cannot be between their respective opportunity costs if there are to be any gains in trade.
The terms of trade are based on opportunity cost being a measure of how much of one good must be given up to get a fixed amount of another good; the terms of trade should be bound between domestic and foreign opportunity costs.The domestic country would not buy abroad if it costs less to produce domestically,nor would it sell abroad if it could receive more income from selling domestically.

Question

Quizplus · Accepted Answer

The statement is incorrect. The terms of trade can be between the opportunity costs of two countries for two goods and still result in gains from trade. The terms of trade represent the exchange ratio between two countries' goods and services, and it can be influenced by many factors, including supply and demand, market power, and bargaining power. Therefore, the terms of trade cannot be bound between domestic and foreign opportunity costs.

The Terms of Trade Between Any Two Countries for Two