Question

By comparing opportunity costs and gains from trade for two parties each making the same two goods, one can determine the exact exchange ratio at which the parties should agree to trade. True or false?

Answer 1

Answer:

False

Explanation:

The opportunity cost of trade cannot precisely determine the exchange ratio at which the parties should agree to trade. However, opportunity cost can determine a test of the range of options, and it will help to support both parties. For example, we need to know the trade between both parties as well as opportunity costs. The opportunity cost will then help to sort out whether it is going to trade or benefit both parties.