Concept:The two-by-two international trade model assumes two countries trade two goods and both can benefit, while the terms of trade decide how the gains are shared.
Explanation:In the model, each country has a comparative advantage in producing one of the two goods.
Both countries are therefore able to specialise and gain from trade at the same time.
The terms of trade refer to the rate at which one country exchanges its export for the other country's export.
If the terms of trade are close to a country's own domestic exchange ratio, that country receives a smaller benefit.
If the terms of trade are more favourable, that country receives a larger share of the total gains.
This means the amount of benefit each country earns is not fixed or automatic.
Instead, the volume of each country's gains depends directly on the terms of trade it secures.
Hence, the terms of trade are important for determining how the benefits of trade are distributed.
Answer:Option B: both countries could gain from trade at the same time, but the volume of the gains depends on terms of trade.