Question

If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie​

Answer 1

Answer:

If two parties trade based on comparative advantage and both gain, in what range must the price of the trade lie? For both parties to gain from trade, the price range must be between the two traders' opportunity costs.

Answer 2

If two parties trade based on comparative advantage and both gain, the price of the trade must lie in the range of opportunity cost.

• ​If both parties concentrate on creating the goods they are most adept at making and trading with one another, commerce based on comparative advantage benefits both sides.
• The trade's price must fall within each party's production opportunity cost range.
• The opportunity cost is the value of the subsequent preferred choice that must be passed up in order to create a certain commodity.
• For example: If Party A, as opposed to Party B, had a lower opportunity cost of manufacturing good X, then Party A would focus on creating good X and trade with Party B for good Y.
• As long as the price of the trade is within the range of the opportunity cost of production for both sides, both parties would benefit from the trade in this scenario.

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