If the international terms of trade settle at a level that is between each country's opportunity cost:
A) there is no basis for gainful trade for either country.
B) both countries gain from trade.
C) only one country gains from trade.
D) one country gains and the other country loses from trade.

Question

Quizplus · Accepted Answer

If the international terms of trade settle at a level that is between each country's opportunity cost, then both countries can benefit from trade. Each country can specialize in producing the goods it is comparatively most efficient at (meaning it has a lower opportunity cost) and then trade for the other good at a price that is lower than its opportunity cost of producing it domestically. This allows both countries to consume more of both goods than they would be able to produce themselves, leading to mutual gains from trade.

If the International Terms of Trade Settle at a Level