In a two by two model of international trade, it is assumed that
- both countries could gain from trade at the same time, but term of trade is inconsequential for the distribution of the gains
-
both countries could gain from trade at the same time, but the volume of the gains depends on terms of trade
- neither country could ever gain from trade since term of trade is depends on the distribution of the gains from trade
- both countries could gain from trade at the same time, and the volume of the gains does not depend on terms of trade
The correct answer is: 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.