If the international terms of trade settle at a level that is between each country's opportunity cost ?
Correct answer: B. Both countries gain from trade
- 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 gain and the other country loses from trade
Explanation
When the international terms of trade lie between the two countries' opportunity costs, each country can export the good in which it has comparative advantage and obtain imports more cheaply than at home. Therefore both countries can gain.
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