Which of the following is a factor that can limit the benefits of trade between two countries?

• A. High transportation costs
• B. Perfectly competitive markets
• C. Identical opportunity costs for both countries
• D. Unlimited resources in both countries

Answer: (A)

Verified step by step guidance

1. Understand the concept of gains from trade: Trade between two countries is beneficial when each country specializes in producing goods for which it has a comparative advantage, allowing both to consume more than they could without trade.
2. Identify factors that can limit the benefits of trade: These include high transportation costs, identical opportunity costs, lack of competitive markets, and resource limitations.
3. Analyze the impact of high transportation costs: High transportation costs increase the price of traded goods, reducing or even eliminating the gains from trade because the cost savings from specialization may be offset by these expenses.
4. Consider identical opportunity costs: If both countries have identical opportunity costs for producing goods, there is no comparative advantage, so trade does not provide benefits.
5. Evaluate other options: Perfectly competitive markets facilitate efficient trade, and unlimited resources generally do not limit trade benefits; thus, these are not factors that limit the benefits of trade.