Question

When two countries produce those goods for which each has the lowest opportunity cost, and then trade for those each could produce only at a high cost, they are trading according to their:

Answer 1

Answer: Comparative Advantage

Explanation: Comparative Advantage is a situation whereby a country produces a product, goods or services which it has the lowest opportunity cost of producing than another country and trades it with another country for another product, goods & services.

This is an aspect of international trade that gives a country production specialisation on the product, goods & services which they produce.

Terms of trade is determined by a country's Comparative advantage and its opportunity costs in which a country can trade with benefits.