The gains from trade that are possible when two countries have different opportunity costs for wheat and coffee are realized when
A) trade occurs and resources are reallocated within the two countries.
B) the two countries continue to produce the same quantities of wheat and coffee.
C) each country has an absolute advantage in one of the two commodities.
D) the demand curves in both countries shift inward.

Question

Quizplus · Accepted Answer

When two countries have different opportunity costs, they can benefit from trade by specializing in the production of the good for which they have a comparative advantage and then trading with each other. This allows both countries to consume more than they would in isolation.

The Gains from Trade That Are Possible When Two Countries