Nation Alpha Has a Comparative Advantage in Product X, and Nation

question 64

Multiple Choice

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

• A) the exchange ratio of X for Y is fixed.
• B) the terms of trade increase in both nations.
• C) there is excess capacity in both economies.
• D) the exchange ratio for X and Y reflect their domestic opportunity costs.