In a two by two model of international trade, it is assumed that
A. both countries could gain from trade at the same time, but term of trade is inconsequential for the distribution of the gains B. both countries could gain from trade at the same time, but the volume of the gains depends on terms of trade C. neither country could ever gain from trade since term of trade is depends on the distribution of the gains from trade D. both countries could gain from trade at the same time, and the volume of the gains does not depend on terms of trade
Correct Answer: B
Explanation
The model emphasizes the export of goods requiring factors of production that a country has in abundance. It also emphasizes the import of goods that a nation cannot produce as efficiently. It takes the position that countries should ideally export materials and resources of which they have an excess, while proportionately importing those resources they need.
