Assume there are two nations each producing two goods, X and Y, and they only trade with each other. Which of the following is identical for both nations if they engage in free trade?
A) the equilibrium relative price of X
B) the opportunity cost of X
C) the opportunity cost of producing X and the opportunity cost of producing Y
D) both the equilibrium relative price of X and the opportunity cost of X

Question

Quizplus · Accepted Answer

The equilibrium relative price of X will be identical for both nations if they engage in free trade, as the price ratios between goods X and Y will equalize across countries due to the law of one price, assuming no transportation costs and other trade barriers.

Assume There Are Two Nations Each Producing Two Goods, X