In a two by two model of international trade, it is assumed that
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In a two by two model of international trade, it is assumed that **both countries could gain from trade at the same time, but the volume of the gains depends on terms of trade**.
This means that both countries can benefit from engaging in trade with each other. Trade allows both countries to specialize in producing and exporting the goods in which they have a comparative advantage, while importing goods that they are less efficient at producing. This leads to increased efficiency and overall economic gains for both countries.
However, the volume of the gains from trade depends on the terms of trade between the two countries. The terms of trade refer to the ratio at which the countries exchange their goods. If one country has a higher bargaining power or can produce goods at a lower cost, they may negotiate more favorable terms of trade, leading to a larger volume of gains for that country. On the other hand, if the terms of trade are less favorable, the volume of gains for both countries may be smaller.
In summary, while both countries can benefit from trade, the extent of the gains will vary depending on the terms of trade negotiated between them.