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 of product X and Y must reflect their domestic opportunity costs. This means that each nation should specialize in producing the good in which they have a comparative advantage and trade for the good they have a comparative disadvantage in, based on their own domestic opportunity cost. If the prices reflect the domestic opportunity cost of production, then both nations will gain from trade. The other choices are not necessary for trade to benefit both nations.

Nation Alpha Has a Comparative Advantage in Product X and Nation